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US retail sales' dip in July clouds recovery
(Agencies)
Updated: 2009-08-14 15:27
WASHINGTON: Retail sales dropped in July, government data showed, reinforcing concerns among economists that consumers won't spend enough to help a recovery take hold. But Friday is expected to bring better news: July inflation is expected to have remained flat, and industrial production is likely to have grown for the first time in nine months.
The Cash for Clunkers rebate program helped give auto sales their biggest jump in six months in July, but sales sank elsewhere. Gas stations, department stores, electronics outlets and furniture stores all suffered. Overall, sales fell 0.1 percent, the Commerce Department said, after two months of modest gains. Economists had expected a 0.7 percent increase. Excluding autos, sales fell 0.6 percent, also much worse than predicted. Unemployment, flat wages, tighter credit, fear of layoffs and the urge to save more have caused many consumers to spend less. Shrinking home equity and stock portfolios have compounded the problem. As a result, "households are in no position to drive a decent economic recovery," Paul Dales, US economist at Capital Economics, wrote in a note to clients. Even Wal-Mart Stores Inc., which had managed to post robust sales during the recession, reported an unexpected drop in quarterly earnings. The company faulted lower prices for groceries and other products. But it warned that the economy continues to force customers to scale back their purchases. Still, low prices should provide some comfort for consumers. The worst recession since World War II has kept prices in check, as workers can't demand higher pay due to the scarcity of jobs. Companies have been unable to boost prices because of weak demand. Over the 12 months ending in June, consumer prices fell 1.4 percent, the biggest decline in almost six decades. That trend is expected to continue when the Labor Department reports the consumer price index figures for July on Friday. The latest figures came just a day after the Federal Reserve said the economy appeared to be "leveling out." The Fed, signaling the recession appears to be ending, said it would hold interest rates at their current record lows. The success of Cash for Clunkers is also expected to push industrial production up 0.3 percent in July. The report is to be released Friday. If the forecast is correct, the increase would come after industrial production fell in 17 of the previous 18 months. But some analysts say people buying cars under Cash for Clunkers might be holding that money back from other sectors of the economy where they might otherwise spend it. Some of Europe's largest economies also benefited from government programs to support the auto industry. Germany and France returned to economic growth in the second quarter, raising hopes the recession will end throughout Europe sooner than thought. |
