Retail Sales in U.S. Unexpectedly Dropped in August

By Timothy R. Homan

Sept. 12 (Bloomberg) -- Sales at U.S. retailers unexpectedly dropped in August as Americans retrenched in the face of mounting job losses and record foreclosures.

The 0.3 percent fall followed a 0.5 percent drop in July, the Commerce Department said today in Washington. Excluding automobiles, purchases were down 0.7 percent, the most this year. The Labor Department separately said prices paid to producers fell for the first time this year as energy costs declined.

Consumer spending is faltering as wages haven't kept pace with inflation and the effect of the government's tax rebates fades. Americans are also confronting declining property values and stock prices, indicating even the recent retreat in fuel costs may not be enough to boost sales.

``There's a big question mark over the performance of the economy over the next six months,'' John Lonski, chief economist at Moody's Investors Service Inc. in New York, said before the report. ``We have to be braced for a decidedly slower pace of consumer spending.''

Producer prices fell 0.9 percent, more than forecast, in August. So-called core producer prices, which strip out fuel and food costs, rose 0.2 percent.

Treasuries rose after the reports, sending benchmark 10-year note yields down to 3.63 percent at 8:35 a.m. in New York, from 3.65 percent late yesterday. Futures on the Standard & Poor's 500 Stock Index lost 0.8 percent, at 1,242.40.

Economists' Forecasts

Retail sales were projected to rise 0.2 percent after an originally reported 0.1 percent drop the prior month, according to the median estimate in a Bloomberg News survey of 80 economists. Forecasts ranged from a drop of 0.5 percent to a gain of 1.1 percent.

Non-auto sales were forecast to drop 0.2 percent from the prior month, according to the median of 76 forecasts. Estimates ranged from a 0.6 percent gain to a drop of 0.6 percent.

Electronics, building material, clothing and department stores all saw a drop in sales last month. Service station receipts also fell as gasoline prices retreated.

Excluding gasoline, purchases were unchanged last month after a 0.6 percent decline in July.

Automakers boosted incentives in August to revive demand as the economy lost jobs for an eighth straight month and the unemployment rate reached a five-year high of 6.1 percent. Sales at car dealers and parts stores increased 1.9 percent, the first increase since January and the biggest in a year.

Sales Incentives

General Motors Corp. offered all customers the same prices paid by employees, helping boost sales in the second half of the month. GM this month said it will extend the incentive through September and has offered 72-month, no-interest financing on some vehicles since late June.

``Not only is the U.S. in a recession, but the rest of the world is slowing down,'' Ford Motor Co.'s Chief Executive Officer Alan Mulally said in a speech this week. ``I've never seen anything quite like it.''

Filling station sales decreased 2.5 percent in August after a 0.2 percent gain the prior month, today's report showed. The average pump price of a gallon of regular gasoline dropped to $3.76 last month from $4.06 in July, according to AAA.

The 1.5 percent decrease in purchases at department stores was the biggest since April 2007. Sales at non-store retailers, reflecting demand from Internet merchants and catalogs, declined 2.3 percent, the most since March 2007.

GDP Impact

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales fell 0.2 percent, the most this year. The government uses data from other sources to calculate the contribution from the three categories excluded.

Industry figures earlier this month showed demand weakened at retailers such as Gap Inc., Target Corp. and Abercrombie & Fitch Co., signaling merchants may be heading for the worst back- to-school season in seven years.

Sales at stores open at least a year climbed 1.7 percent in August, the smallest gain in five months, the International Council of Shopping Centers said last week. Purchases from July through September, retailing's second-biggest season after Christmas, may climb 1 percent, according to the ICSC. That would be the smallest gain since 2001.

``By July, essentially all the rebates had already been distributed, and so were no longer providing support to incomes,'' Goldman Sachs Group Inc. economist Seamus Smyth said in a note to clients on Sept. 2. ``Combined with weak job growth and tight credit, consumers had no way to fund additional consumption.''

Consumer spending will stall from July to September, three months earlier than predicted last month, according to the median estimate of economists polled from Sept. 2 to Sept. 9. The slump will slow growth to less than half the prior quarter's pace.

To contact the reporter on this story: Timothy R. Homan in Washington thoman1@bloomberg.net