U.S. Economy: Retail Sales Dropped in June as Recovery Cooled
By Shobhana Chandra
July 14 (Bloomberg) -- Sales at U.S. retailers dropped in June for a second month, indicating the economic recovery dissipated heading into the second half of 2010.
Purchases decreased 0.5 percent, more than projected, after declining 1.1 percent in May, Commerce Department figures showed today in Washington. Excluding auto dealers, demand fell 0.1 percent, matching the median forecast of economists surveyed by Bloomberg News.
Shares of retailers from Target Corp. to Amazon.com Inc. fell on concern a lack of jobs and a loss of wealth will restrain consumers, whose spending accounts for 70 percent of the economy. Other reports showed the cost of imported goods fell more than forecast and companies boosted inventories at the slowest pace of the year in preparation for slackening demand.
“The consumer is losing some momentum,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York. “Job gains are not enough to bring the unemployment rate down. It means the recovery goes on, just at a slower pace.”
The Standard & Poor’s Supercomposite Retailing Index, which includes Target and Amazon.com fell 0.4 percent to 402.44 at 11:50 a.m. in New York. The broader S&P 500 rose 0.3 percent, and Treasury securities climbed, sending the yield on the benchmark 10-year note down to 3.10 percent from 3.12 percent late yesterday.
Falling Prices
Prices of goods imported into the U.S. fell in June by the most since January 2009, led by declines in costs of oil, business equipment and consumer goods, a report from the Labor Department also showed today. The 1.3 percent drop in the import price index was more than projected and followed a revised 0.5 percent decline in May.
A lack of inflation and the financial turmoil caused by the European debt crisis led the Federal Reserve last month to renew a pledge to keep interest rates near zero. Minutes of the meeting, including policy makers’ updated economic forecasts, are due at 2 p.m. today.
Companies started bracing for slower growth when sales began retreating in May. Inventories rose 0.1 percent that month from April, the smallest gain this year, another Commerce Department report showed today. The increase in the value of stockpiles was smaller than the median forecast of economists surveyed by Bloomberg News and followed a 0.4 percent advance the prior month.
Gain in Inventories
“Inventory restocking is showing signs of fatigue,” Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “The recovery has lost some steam over the past month, and the reluctance of small businesses to invest and hire will contribute to a weak second half of this year.”
Retail sales were projected to fall 0.3 percent after a 1.2 percent drop previously reported for May, according to the median estimate of 75 economists in a Bloomberg News survey. Forecasts ranged from a decline of 0.8 percent to a 0.5 percent gain.
Six of 13 major retail categories showed decreased demand last month, led by a 2.3 percent fall at auto dealers. Vehicles sold at an 11.1 million annual pace in June, the fewest in four months, industry data showed. General Motors Co. and Ford Motor Co., the two largest U.S. automakers, reported lower-than- projected demand.
Furniture, building-material, sporting goods and grocery stores were among the other areas seeing a pullback in purchases.
Influence on Growth
Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales rose 0.2 percent after a 0.2 percent decrease the prior month.
Economists at JPMorgan Chase & Co. in New York trimmed their tracking estimate of second-quarter growth to 2.2 percent at an annual rate from 2.5 percent before the retail sales report.
“The consumer slowed quite a bit in the second quarter,” said Michael Feroli, chief U.S. economist at JPMorgan Chase. “The recovery has shifted down to a weaker pace. It mirrors the slowdown in the labor market.”
Companies boosted payrolls by 83,000 workers in June, a Labor Department report showed this month. The gain was smaller than the median forecast of economists surveyed. The jobless rate dropped to 9.5 percent as discouraged jobseekers left the workforce.
Europe’s debt crisis also poses a risk to the U.S. recovery as sliding share prices hurt household wealth and shake consumer and business confidence.
“Less supportive” financial conditions were cited by Fed officials on June 23, when they reaffirmed forecasts for a “moderate” pace of growth and kept interest rates unchanged.
Minneapolis-based Target, the second-largest U.S. discount retailer, reported a June same-store sales gain that included strong demand for food and clothing and “particularly soft” purchases of electronics and music.
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