U.S. Retail Sales Rise 0.3% in August; Drop 0.4% Ex-Autos
By Joe Richter
Sept. 14 (Bloomberg) -- Retail sales in the U.S. rose less than forecast in August, adding to concerns a softening labor market and a deeper housing slump will curtail demand.
The 0.3 percent increase followed a revised 0.5 percent rise the prior month that was larger than previously estimated, the Commerce Department said today in Washington. Purchases excluding automobiles unexpectedly fell 0.4 percent.
Declining home values, higher borrowing costs and the first drop in hiring in four years may sap Americans' buying power. A slowdown in spending, which accounts for more than two thirds of the economy, may prompt Federal Reserve policymakers to continue lowering interest rates after a projected reduction at next week's meeting.
``With employment slowing down, the stock market struggling and home prices falling, the headwinds for the consumers are going to grow stronger,'' Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis, said before the report. ``Downside risks grew appreciably over the past month, and the Fed will want to start cutting rates as an insurance policy against recession.''
Retail sales, which account for almost half of all consumer spending, were projected to rise 0.5 percent after an originally reported 0.3 percent increase in July, according to the median of 79 estimates in a Bloomberg News survey of economists. Forecasts ranged from 0.1 percent to 1.2 percent.
Declines in purchases at building material merchants, clothing stores and service stations restrained the sales total last month.
Sales excluding automobiles were forecast to increase 0.2 percent a previously reported 0.4 percent gain. Today's report revised July's gain to 0.7 percent.
Housing-Related Sales
Some housing-related categories showed increases in demand, easing concern spending would deteriorate quickly. Sales at furniture an electronics stores improved last month.
``The outlook certainly isn't for the consumer to crumble,'' Tim Rogers, chief economist at Briefing.com in Boston, said before the report. ``Clearly, there are risks that weren't there even a few weeks ago, but income growth is still supporting spending.''
Receipts at automobile dealerships and parts stores rose 2.8 percent last month, the most since July 2006. Sales at service stations dropped 2.4 percent, the most since October, reflecting a decline in gasoline prices. Excluding autos and gasoline, sales dropped 0.1 percent, the first decline since April.
Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.1 percent, the smallest increase since April, after jumping 0.8 percent the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.
Wages Help
Even as Americans lose confidence in the economy, gains in wages have so far prevented a collapse in spending, which makes up more than two-thirds of the economy. Hourly earnings were up 3.9 percent on average in August from last year, according to figures from the Labor Department.
That may help take some of the sting out of a drop in hiring. Payrolls fell by 4,000 in August, the first decline in four years.
``Most of the underlying fundamentals of the U.S. economy are pretty good,'' Rick Wagoner, General Motors Corp.'s chief executive officer, said in an interview. Detroit-based GM is the largest U.S. automaker.
Early evidence suggests spending isn't deteriorating further this month. Retail sales at stores open at least a year during the seven days ended Sept. 8 rose the most in five weeks as consumers bought back-to-school clothing and supplies, according to the International Council of Shopping Centers and UBS Securities LLC. Consumers are spending at a ``moderate pace,'' the trade group said Sept. 11.
Fed Policy
The slowdown in spending last month may make it easier for Fed policy makers to keep lowering interest rates if needed jumpstart the economy.
Falling home values and the decline in payrolls signal the housing recession may wear down consumers in coming months, economist said.
The Fed will probably cut its benchmark target rate by a quarter percentage point to 5.00 when they meet Sept. 18, based on the median forecast of economists surveyed by Bloomberg. Some businesses are calling for a bigger reduction to revive demand.
``A significant rate cut of 50 points would be helpful,'' said GM's Wagoner. ``A rate cut would certainly do a lot to shore up confidence'' and ``help avert a potential continued downslide in the U.S. economy.''
Consumer spending will probably grow at a 2.25 percent average annual pace in the final six months of the year, compared with a 2.55 percent rate from January through June, based on the median in a Bloomberg survey of economists Aug. 30 to Sept. 7. Quarterly gains averaged 3.7 percent in the last decade.
Audi AG, Volkswagen AG's luxury brand, said U.S. sales will decline in the fourth quarter, in part because competitors will offer more incentives to spur sales.
``We need to batten down the hatches, so to speak,'' Johan de Nysschen, Audi's U.S. chief, said in a Sept. 12 interview. ``We think it's going to be stormy for a while.''
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