Retail sales slow in August

Thursday, September 14th 2006, 8:56 am
By: News On 6

WASHINGTON (AP) _ Retail sales in August posted the weakest showing in two months as worried consumers curbed their spending habits.

The Commerce Department reported that the nation's retailers saw a tiny 0.2 percent increase last month following a much bigger 1.4 percent rise in July. It was the weakest performance since sales had actually fallen by 0.5 percent in June.

Much of the August weakness reflected a sharp slowdown in auto sales, which edged up just 0.4 percent last month after having surged by 4.3 percent in July.

In another report, the Labor Department said that the number of Americans filing claims for unemployment benefits fell to 308,000 last week, down by 5,000 from the previous week. The drop pushed claims to a seven-week low.

The tiny 0.2 percent rise in retail sales was slightly better than analysts had been expecting. They were forecasting an outright decline in sales of 0.1 percent.

Consumer spending, which has been the driving force in this economic expansion, slowed dramatically in the spring as consumers were battered by soaring gasoline prices, rising interest rates and a cooling housing market, which made homeowners feel less prosperous and less inclined to spend money.

The overall economy grew at an annual rate of just 2.9 percent in the April-June quarter after turning in a sizzling pace of 5.3 percent in the first three months of the year.

While the sharp slowdown had raised concerns of a possible recession, economists have grown less concerned about that possibility because of a retreat in oil prices, which have declined significantly from their mid-July highs.

The decline in gasoline prices is expected to show up in stronger retail sales in coming months as consumers have more to spend on other items because they will be paying less to fill up their tanks.

Stephen Stanley, chief economist at RBS Greenwich Capital, said that gasoline prices have fallen by nearly 50 cents per gallon since hitting their highs in early August. He said this should provide a big boon to consumer spending in coming months.

``Consumer spending is going to explode, probably in September, October and maybe November,'' he predicted.

For July, the weakness in retail sales showed up not only in the slowdown in car sales but in a 0.3 percent drop in sales at furniture stores, which have been hurt by the cooling housing market.

Sales at gasoline stations fell a sharp 1 percent, but this decline reflected the retreat in gasoline prices from levels above $3 per gallon in many parts of the country.

Sales at department stores fell by 0.2 percent while sales at general merchandise stores, the category that includes department stores, showed a 0.4 percent increase. Sales at specialty clothing stores dropped by 0.3 percent in August.

Sales at grocery stores, hardward stores and electronics and appliance stores all posted gains.