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Higher retail spending lifts hopes for economy

Retail sales rose 0.8 percent in July, the largest amount in five months, buoyed by more spending on autos, furniture and clothing. The increase followed three months of declines.

Associated Press

Retail sales rose 0.8 percent in July, the largest amount in five months, buoyed by more spending on autos, furniture and clothing. The increase followed three months of declines.

WASHINGTON — Americans increased their retail spending in July by the most in five months, opening their wallets after a frugal spring and offering hope that the slumping economy may rebound in the second half of the year.

Retail spending rose in every major category, from electronics and sporting goods to furniture, building supplies and garden equipment. Overall retail sales rose 0.8 percent from June to July, the Commerce Department said, the sharpest increase since February. It followed three months of declines.

"People are spending a little more and feeling a little better about the economy," said James Donnelly, a sales associate at Boston-based Tadpole, which sells infant wear, children's clothing and toys.

Donnelly says he has seen an increase in business and traffic in recent weeks. The store has run 40 percent discounts on summer merchandise. Shoppers are also buying some back-to-school items, like backpacks and clothing.

Americans appear to be taking their cues from the economy's modest but steady improvements.

Employers added 163,000 jobs in July, the best month for job growth since February. Home prices are up. The value of U.S. exports reached a record high last month. U.S. consumers are expressing more confidence. And stock indexes are near their highs for the year.

"I am looking for a better second half of the year, in part because I think business will become more confident, and they will increase their hiring," said Joel Naroff, chief economist at Naroff Economic Advisors.

Some economists cautioned that part of the July increase in retail spending was inevitable after consumers cut spending in each of the months in the April-June quarter. Consumers will likely sustain their spending increases only if hiring continues to strengthen, they said.

In the meantime, many Americans remain anxious about the job market, slow wage gains and high debts.

"Consumers hunkered down all through the spring, and then they came out in July and decided to do some overdue spending," said Chris Christopher, a senior economist at IHS Global Insight. "But until we see more months of spending gains, we should be very cautious about how we evaluate the situation."

A brighter outlook for the economy could make the Federal Reserve hold off on taking further action to boost growth when its policy committee meets in September.

The Fed signaled in late July that it was ready to act if growth and hiring stayed weak. That led many economists to predict the Fed would announce a third round of bond purchases designed to push long-term interest rates down and generate more borrowing and spending in the economy.

"As long as you have signs that the economy is either holding its own or getting a little better, then the Fed doesn't have a reason to do anything," Naroff said.

The most critical measure of the economy's health will be the August employment report released Sept. 7.

In the past 29 months, U.S. companies have added 4.5 million jobs.

Higher retail spending lifts hopes for economy 08/14/12 [Last modified: Tuesday, August 14, 2012 9:26pm]

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