U.S. Retail Sales' Surprise Dip Clouds Recovery

Most analysts had expected a monthly sales increase of 0.7% in July.

U.S. retail sales unexpectedly dipped 0.1% in July, government data showed Thursday in a report highlighting weakness in consumer demand that is crucial for recovery from recession.

The Commerce Department's headline figure surprised most analysts, who had expected a monthly sales increase of 0.7% in July after two months in a row of gains, and dented those looking for "green shoots" of recovery. "This is awful -- a reality check for the green shooters," said Ian Shepherdson of High Frequency Economics.

A separate report of an unexpected rise in weekly new unemployment insurance claims, however, revealed continued signs of stabilization in the ailing labor market that may eventually get wary consumers to pry open their wallets again.

The retail sales report came a day after the Federal Reserve left its key interest rate unchanged at a historically low zero to 0.25%, as expected, and said although the recession-mired economy was showing signs of improvement "activity is likely to remain weak for a time."

The monthly retail sales data signal the direction of consumer spending, which accounts for roughly two-thirds of output in the world's largest economy.

After slumping in the second half of 2008, the seasonally adjusted monthly retail sales data, which do not reflect price changes, has shown only four months of rising sales since the start of the year.

The Commerce Department revised upward the increase in June sales to 0.8% from an estimated 0.6%.

July sales were 8.3% below their year-ago level.

"The pace of sales declines has stabilized on a year-over-year basis. But we need much more than that to turn the corner on recession," said Robert Brusca of FAO Economics.

Motor vehicles and parts sales were the strongest gainers, up 2.4%, benefiting from the government's "cash-for-clunkers" incentives program.

Excluding automobile sales, which can vary widely from month to month, retail sales fell 0.6% in July, steeper than the consensus forecast of a 0.1% drop and following a 0.5% gain in June.

In a grim sign of weakening consumer demand that could restrain economic recovery, core retail sales -- excluding automobiles and gasoline, whose price is often volatile -- fell for the fifth consecutive month, by 0.4%, after a 0.1% decline in June.

"The big story is the core... the trend is still clearly downwards," Shepherdson said.

Only five of the sales index's 13 components rose in July. Apart from the surge in vehicle sales, the strongest gain was a 0.7% rise in health and personal care store sales.

The sharpest sales declines, 2.1%, were in building material and garden equipment stores and gasoline stations.

Copyright Agence France-Presse, 2009

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