Retail sales off in July

WASHINGTON - Retail sales fell in July, the weakest performance in five months, as shoppers shunned autos and other big-ticket items.

The Commerce Department reported yesterday that retail sales dipped 0.1 percent last month when a variety of economic woes combined to blunt the impact of billions of dollars in government stimulus payments to U.S. households.

It was the first decline since sales had fallen 0.5 percent in February, and it was a worse showing than the flat reading economists had been expecting. The new report did revise higher the estimate for June, showing sales rose 0.3 percent that month rather than the 0.1 percent initial reading.

The weakness in July came after another big slide in auto sales, as Detroit faced its worst sales month in 16 years. Automakers have been battered by the weak economy and record gasoline prices, which have cut into demand for their once-popular sport-utility vehicles and pickup trucks.

The White House noted that overall sales had been heavily influenced by the big drop in auto sales and what presidential spokesman Tony Fratto called "substantial headwinds faced by households." Fratto said the weakness in July was occurring at a time when gasoline pump prices were peaking at more than $4 per gallon.

Excluding the big drop in autos, retail sales would have posted a 0.4 percent increase. While that was a positive reading, it was still the weakest showing for sales excluding autos in five months.

Much of what little strength there was in July came from a big jump in sales at gasoline stations, which were up 0.8 percent. That increase, however, reflected surging prices rather than increased demand.

Analysts said the poor showing in July, the last month for bulk mailings of stimulus checks, raised concerns about consumer spending going forward.

"Cautious and uncertain consumers are watching their wallets, and with the back-to-school shopping season under way, that does not bode well for retailers," said Joel Naroff, chief economist for Naroff Economic Advisors.

For example, Macy's Inc. said yesterday that its second-quarter earnings dropped slightly, and it warned that full-year profit would be below Wall Street expectations.

The department store operator earned $73 million, or 17 cents a share, in the quarter ended Aug. 2, compared with $74 million, or 16 cents a share, a year earlier.

This year's results include two unusual items that cut earnings 12 cents a share. Excluding those items, Macy's earned 29 cents a share from continuing operations.

Revenue fell 3 percent to $5.7 billion from $5.9 billion. Macy's says that same-store sales, or sales at stores opened at least a year, dropped 2.1 percent. Same-store sales are considered a key indicator of a retailer's health.

Analysts surveyed by Thomson Reuters had expected earnings of 19 cents a share on revenue of $5.75 billion.

On Wall Street, stocks fell for a second session after the retail-sales report, and oil prices rose.

The Commerce Department also said business inventories rose 0.7 percent in June, nearly double the 0.4 percent gain in May and the biggest increase since January.

Analysts say they believe businesses will continue boosting inventories in the months ahead. The ratio of inventories to sales fell to an all-time low of 1.23 months in June, meaning it would take that long to exhaust stockpiles at the June sales rate. Sales at all levels of business rose 1.7 percent in June, up from a 1.1 percent gain in May.

Gasoline pump prices hit an all-time high in July at $4.11 a gallon. Without the big rise in gas station sales, retail sales would have fallen 0.2 percent in July.

The disappointing performance of retail sales meant the consumer sector, which accounts for two-thirds of total economic activity, got off to a weak start at the beginning of the third quarter. The government wrapped up distributing the bulk of the economic-stimulus payments for a total of $92 billion through the end of July.

The Bush administration and Congress rushed a $168 billion package of stimulus payments to households and tax breaks for businesses through Congress at the beginning of this year. They were hoping to keep the worst slump in housing in decades and a severe credit crunch from pushing the country into a deep recession.

Studies have shown that, so far, about only 20 percent of the stimulus checks have been spent, with consumers choosing to save much of the rest of the payments.

For July, the retail-sales report showed that sales at department stores and other general-merchandise stores rose 0.3 percent, just half the 0.6 percent June increase. Sales at restaurants and bars, which have been hit hard by the current slowdown, dipped 0.2 percent in July after a modest 0.3 percent June gain.

Sales at furniture stores, which have been hurt by the steep slump in housing, rose 1 percent in July, but that followed a 1.2 percent decline in June.