U.S. retail sales decline 0.1% unexpectedly in July


WASHINGTON — U.S. retail sales unexpectedly fell 0.1 percent in July, as soft sales for most types of merchandise offset a boost from the government’s “cash-for-clunkers” subsidy, the Commerce Department reported.

It was the first decline for seasonally adjusted sales in three months. The report shows that consumer spending is still weak, despite attempts by the government to stimulate demand. Sales at most types of stores declined in July.

Economists surveyed by MarketWatch were looking for sales to rise 0.8 percent in July after an upwardly revised 0.8 percent increase in June. “We know a clunker when we see one, and the July retail sales report was a real clunker,” wrote Richard Moody, chief economist for Forward Capital.

Retail sales, which account for about one-third of final demand in the economy, are down 8.3 percent compared with July 2008. The figures are not adjusted for price changes. Falling gasoline prices in July led to a 2.1 percent decline in sales at gasoline stations. Excluding gas, retail sales rose 0.1 percent. Gas prices have risen since.

The government subsidy that gives owners of older, less-efficient vehicles as much as $4,500 toward the purchase of a new one had a major impact, as auto sales rose 2.4 percent. Analysts expect the program will have an even larger effect on auto sales in August. The program was running for just one week during July.

Excluding autos, retail sales fell 0.6 percent, against an expectation of a 0.1 percent increase. Sales excluding autos rose 0.5 percent in June and are now down 8.5 percent in the past year.

The cash-for-clunkers program may be having a negative impact “as consumers shift dollars to paying for their new vehicles instead of other purchases,” said Adam York, an economist for Wells Fargo Securities.

“The consumer is still under considerable pressure tied to a weakening labor market, a negative wealth effect and tight credit conditions,” said David Greenlaw, an economist for Morgan Stanley. “Also, it appears that the recent tax stimulus is having limited impact. We look for a modest pop in consumer spending in the third quarter, driven by the success of the cash for clunkers, followed by a return to a more tepid pace in the fourth quarter.”

In other reports, the Labor Department said first-time filings for state unemployment benefits rose by 4,000 last week to 558,000. The number of people collecting regular state benefits fell 141,000 to 6.2 million. A total of 9.83 million people were collecting some type of benefits as of July 25.

Business inventories fell 1.1 percent in June, while sales rose 0.9 percent, the Commerce Department reported. The key inventory-to-sales ratio declined to 1.38 from 1.41 in May.

Also, the Labor Department reported that import prices fell 0.7 percent in July as petroleum prices declined.

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