- The Washington Times - Wednesday, July 15, 2009

Surging gasoline prices lifted retail sales in May and June and contributed to the biggest monthly jump in wholesale prices since November 2007.

However, falling gas prices in recent weeks likely will relieve any price pressures, analysts said. And the gasoline-led upticks in retail sales during the two previous months do not disguise the fact that June’s retail and food-services sales were still 9 percent below year-earlier levels, unimpressed analysts pointed out. Meanwhile, businesses continue to slash their inventories in a mostly futile effort to catch up with the dismal sales climate.

“Retail sales have been flat since January after falling off a cliff in the second half of 2008,” said Patrick Newport, U.S. economist at IHS Global Insight. “Rising unemployment and job insecurity, together with massive losses in financial and housing assets, are discouraging spending on autos, home furnishings and other discretionary items.”

The price for regular gasoline jumped 37 cents per gallon in June, propelling a $1.4 billion increase in sales at filling stations. That increase accounted for 64 percent of the $2.2 billion, or 0.6 percent, rise in retail sales last month, the Commerce Department reported Tuesday.

Sales declined in June at furniture stores, health and personal care establishments, department stores, building-material outlets and food services and drinking places. Helped by aggressive discounting and liquidation sales at closing Chrysler dealerships, sales at vehicle and auto parts dealers increased 2.3 percent last month. Revenue also rose at grocery stores, sporting-goods stores and electronics and appliance outlets.

“Consumer spending overall is still bouncing along the bottom, hardly changed since December, as households remain frugal,” said Ryan Sweet at Moody’s Economy.com. “Spending will face hurdles in the second half of this year, led by fading government support to household cash flow, falling house prices, little wage growth and rising unemployment.”

Wholesale gasoline prices soared 18.5 percent in June, providing the fuel to lift the producer price index by 1.8 percent last month, the Labor Department reported Tuesday. Even so-called core producer prices, which exclude the volatile energy and food sectors, jumped 0.5 percent in June.

June’s outsized 1.8 percent jump in producer prices followed increases of 0.3 percent in April and 0.2 percent in May. However, driven by the collapse of energy prices during the second half of last year, producer prices have declined 4.6 percent since June 2008.

Analysts at IHS Global Insight expect “downward pressure” on producer prices as businesses “continue to offer an incredible range of discounts and financial incentives to get consumers to part with their hard-earned money.”

Given that businesses were operating at just 68.3 percent of capacity, Moody’s Economy.com also expects that “core inflation will face downward pressure for some time.”

Business inventories fell for the ninth month in a row in May, the Commerce Department reported Tuesday. However, “inventories-to-sales ratios remain extremely elevated” because sales are still so weak, said Kim Whelan, an economic analyst at Wells Fargo Securities. This necessary, ongoing decline in inventory investment will show up having a negative impact on the economy when the first estimate of second-quarter gross domestic product is released later this month, Ms. Whelan noted.

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