Sales Probably Dropped, Prices Climbed: U.S. Economy Preview

By Bob Willis

Aug. 10 (Bloomberg) -- Sales at U.S. retailers probably dropped in July for the first time in five months as record gasoline prices siphoned the cash from tax rebates out of consumers' pockets, economists said before reports this week.

Purchases fell 0.1 percent after a 0.1 percent gain in June, according to the median estimate in a Bloomberg News survey before the Commerce Department's report on Aug. 13. Other reports may show food and fuel prices pushed up the cost of living, while manufacturing stagnated.

Consumer spending, which accounts for more than two-thirds of the economy, is likely to keep fading after growing at the slowest pace in 17 years. Americans will still be faced with rising unemployment, falling property values and elevated fuel costs after the rebate checks have gone out.

``The consumer is being squeezed on a lot of fronts,'' said John Ryding, chief economist at RDQ Economics LLC in New York. ``I don't see at this point the catalyst to a near-term recovery.''

Retail sales excluding auto dealers increased 0.5 percent following a 0.8 percent gain in June, according to the survey median. Spending at service stations, reflecting the cost of fuel, probably boosted the figure, economists said.

Regular unleaded gasoline averaged $4.06 a gallon in July, a monthly record, according to AAA. The cost of food has also surged, prompting shoppers to frequent discount stores in search of bargains.

Wal-Mart Forecast

Wal-Mart Stores Inc. last week said same-store sales will probably slow this month after rising 3 percent in July because most shoppers have already received their tax rebates.

Customers bought groceries, flat-panel televisions and video games, while sales of apparel and home goods were ``slightly negative,'' the company said. Consumers are spending ``more cautiously'' as stimulus checks end, Eduardo Castro- Wright, the Bentonville, Arkansas-based retailer's head of U.S. stores, said in a statement.

Consumers aren't buying expensive items like automobiles, reflecting slumping confidence and weakening household finances. Cars and light trucks sold at a 12.5 million annual pace in July, the fewest since 1993, according to industry data compiled by Bloomberg News.

Spending may rise at a 0.2 percent annual rate in the fourth quarter, the smallest gain since 1991, after an estimated 1.5 percent gain in the July-to-September period, according to economists surveyed by Bloomberg in the first week of July. Advance estimates on gross domestic product released July 31 also put that gain in spending at 1.5 percent for the second quarter.

Rebates Out

Almost all the estimated $110 billion in rebate checks had gone out through July.

Record gasoline prices and costlier food propelled consumer prices up 0.4 percent last month after a 1.1 percent June increase, according to the median forecast ahead of the Labor Department's Aug. 14 report. The cost of living was probably up 5.2 percent from July 2007, the biggest 12-month gain since 1991.

The slump in commodity prices that began in mid July and has continued this month indicates cost pressures may abate.

Federal Reserve policy makers last week held their key lending rate unchanged at 2 percent and signaled that interest rates will stay where they are until next year as they wait for slowing growth to cool inflation.

The central bank said price increases are of ``significant concern,'' while noting that ``downside risks to growth remain.'' Policy makers also dropped a reference to ``diminished'' dangers to growth that was found in their June statement.

With demand slowing, the Fed is likely to report Aug. 15 that industrial production was unchanged in July after rising 0.5 percent the prior month, economists estimated.

Another report on Aug. 12 may show the trade deficit widened to $61.9 billion in June from $59.8 billion a month earlier, economists forecast, reflecting imports of higher- priced oil and petroleum derivatives.

Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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Trade Balance $ Blns 8/12 June -59.8 -62.0
Import Prices MOM% 8/13 July 2.6% 1.0%
Import Prices YOY% 8/13 July 20.5% 20.5%
Retail Sales MOM% 8/13 July 0.1% -0.1%
Retail ex-autos MOM% 8/13 July 0.8% 0.5%
Business Inv. MOM% 8/13 June 0.3% 0.5%
CPI MOM% 8/14 July 1.1% 0.4%
Core CPI MOM% 8/14 July 0.3% 0.2%
CPI YOY% 8/14 July 5.0% 5.1%
Core CPI YOY% 8/14 July 2.4% 2.4%
Initial Claims ,000's 8/14 Aug. 10 455 435
Cont. Claims ,000's 8/14 Aug. 3 3311 3300
Empire Manu. Index 8/15 Aug. -4.9 -4.4
Ind. Prod. MOM% 8/15 July 0.5% 0.0%
Cap. Util. % 8/15 July 79.9% 79.8%
U of Mich Conf. Index 8/15 Aug. P 61.2 62.0
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To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net