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US retail sales probably rose in July, spurred by auto demand

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Consumers in the US took advantage of the government’s cash-for-clunkers program in July, giving auto dealers a lift while other retailers struggled to lure customers, economists said ahead of reports.

Figures from the Commerce Department will show total purchases climbed 0.8 percent, the most in six months, according to the median estimate of 76 economists in a Bloomberg News survey. Excluding autos, sales probably rose just 0.1 percent.

“Spending will look much better in the third quarter because of a temporary boost from cash-for-clunkers,” said Joseph Brusuelas, a director at Moody’s in West Chester, Pennsylvania. “Outside of autos, though, consumption is very weak, and there is little reason to expect any measurable improvement.”

Retailers such as Macy’s Inc. are cutting costs and inventories to bolster profits as ongoing job losses and falling home values prompt Americans to cut back on non- essential items. The sales figures will underscore the views of Federal Reserve policy makers, who said yesterday that spending remains “constrained,” even as the economy “is leveling out.”

The retail sales report is due at 8:30 a.m. in Washington. Economists’ estimates ranged from a decline of 0.9 percent to a gain of 2 percent. Excluding autos, the projected increase in sales would be the smallest in three months.

Fewer Claims

Figures from the Labour Department shows the number of workers filing applications for unemployment benefits fell to 545,000 last week from 550,000 a week earlier. While down from the first half of the year, claims remain higher than the 350,000 per week filed on average during the six-year expansion that ended in December 2007.

Another report from Labour at the same time may show the cost of imported goods in July dropped for the first time in six months as fuel prices retreated after surging in June, economists forecast.

President Barack Obama last week signed into law an emergency measure giving an additional $2 billion to the cash- for-clunkers program after the original $1 billion ran out months earlier than projected. The infusion of funds was intended to extend the program through August.

Industry data showed sales of cars and light trucks rose to an 11.2 million annual unit pace in July, the highest since September, after the government offered credits of up to $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles.

Cutting Stockpiles

Other retailers haven’t had as much success. Macy’s, the second-biggest US department store chain, said yesterday it cut inventories 7.5 percent in the second quarter from a year ago as sales dropped.

Karen Hoguet, chief financial officer at the Cincinnati- based company, said on a conference call that Macy’s is “cautiously optimistic” its sales trends will improve.

Another report from the Commerce Department shows stockpiles at US companies declined in June for a tenth consecutive month.

Consumer spending, which accounts for 70 percent of the economy, is projected to grow at an average 1.6 percent pace through the first half of 2010, ending its worst slump since 1980, according to the median estimate of economists surveyed this month by Bloomberg News. Purchases rose at an average 3.5 percent pace in the decade before the current recession began in December 2007.

Fed Views

Fed policy makers yesterday said they will hold the benchmark interest rate “exceptionally low” for an “extended period” to help sustain a recovery. They also added “sluggish income growth” to the list of reasons why household spending is likely to be slow to rebound. Headwinds previously mentioned included job losses, tight credit and falling home values.

The economy lost 247,000 jobs in July, the fewest since last August and down from a 443,000 drop the prior month, the Labour Department reported last week. Retailers cut 44,000 positions, more than twice the 21,000 eliminated in June.

The report also showed the jobless rate unexpectedly dropped to 9.4 percent from 9.5 percent in June as discouraged workers left the labor force. The decline was the first since April 2008.


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