Consumers spent more in July, retail sales data shows

WASHINGTON — The economy might not be on the brink of another recession after all.

Consumers, who drive most economic growth, spent more on cars, furniture, electronics and other goods in July — and more in May and June than previously thought. That burst of activity is encouraging because it shows many Americans were willing to spend despite high unemployment, scant pay raises, steep gas prices and diminished wealth.

Retail sales rose 0.5 percent last month, the Commerce Department said Friday. It was the best showing since March. The government also revised up its estimates of sales for the previous two months. Even after excluding gas station sales, which were boosted by a rise in gas prices, sales rose 0.3 percent in July.

If it keeps up, the economy might rebound after growing at an annual rate of just 0.8 percent in the first half of 2011.

That's a big if.

Whether Americans remain willing to spend freely despite the stock markets' wild swings will determine whether the second half of the year is better than the first. Even with the Dow Jones Industrial Average's 125-point gain Friday, the Dow is down about 11 percent since July 21.

"The fact that retail sales held up over the last few months … is a positive economic development," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "However, the true test will be to see whether consumer activity held up in the face of recent financial market gyrations and slumping economic confidence. So the August data will be of much greater significance."

Worries about the markets and the economy already seem to have caused some shoppers to pull back. The International Council of Shopping Centers-Goldman Sachs index, which tracks revenue at stores open at least a year, has shown two straight weekly declines.

It's a pivotal moment for the nation's retailers. They're in the midst of back-to-school season and are planning for Christmas sales. Together, the two shopping seasons represent up to half their annual revenue.

Retailers are concerned the weak economy and stock market turmoil could cause shoppers to retreat as they did when the financial crisis hit in 2008. Back then, spending plunged so much that some retailers slashed prices up to 80 percent.

This time, retailers seem better prepared. They've kept inventories lean to avoid being stuck with huge piles of marked-down products.

The mildly positive economic figures in recent days have at least given economists cause for hope. Layoffs are down. Retail sales are up. Gas prices have fallen. Employers added 117,000 jobs last month. That isn't enough to significantly lower the unemployment rate, now at 9.1 percent. But it was more than expected and was an improvement after two dismal months for hiring.

"Confidence is very unlikely to stay this low for long," said Paul Dales, an economist at Capital Economics.

Most large retailers are remaining optimistic. Macy's, Kohl's and Nordstrom have boosted their annual profit outlooks. Yet they're also concerned about the risk that conditions will worsen.

Inventories inch up

Businesses added to their stockpiles for an 18th consecutive month in June, but the increase was the smallest in more than a year. Companies may be less confident amid declining consumer demand and growing fears of a recession. Business inventories rose 0.3 percent in June, the weakest gain since May 2010, the Commerce Department reported Friday. Total business sales rose 0.4 percent after a 0.1 percent drop in May. The rebound in sales should help to bolster shaky business sentiment and spur further inventory restocking in coming months.

Consumers spent more in July, retail sales data shows 08/12/11 [Last modified: Friday, August 12, 2011 11:45pm]

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