Retail sales gain hints at stronger growth

WASHINGTON Tue Aug 14, 2012 12:59pm EDT

A Home Depot store is pictured in Daly City, California, February 21, 2012. REUTERS/Beck Diefenbach

A Home Depot store is pictured in Daly City, California, February 21, 2012.

Credit: Reuters/Beck Diefenbach

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WASHINGTON (Reuters) - Retail sales rose in July for the first time in four months as demand climbed for goods ranging from cars to electronics, a sign that consumers could drive faster economic growth in the third quarter.

Sales rose 0.8 percent last month, the largest gain since February and well above analysts' expectations, Commerce Department data showed on Tuesday.

A separate report showed U.S. producer prices increased in July at the fastest pace in five months even as energy prices fell.

The broad-based expansion in retail sales bolstered the view that the slowdown in economic growth during the second quarter will prove temporary.

"Here comes the U.S. consumer," said Harm Bandholz, an economist at UniCredit in New York.

Consumer spending drives the U.S. economy, and the report could give some relief to President Barack Obama, whose November re-election bid against Mitt Romney, the presumptive Republican nominee, has been imperiled by a weak recovery.

But after a dismal spring, summer has brought more reassuring signs for the economy.

Hiring accelerated in July despite an uptick in the jobless rate, and Tuesday's data added to uncertainty that the Federal Reserve will implement a third round of bond-buying, or quantitative easing, to stimulate growth.

"Today's retail sales data further reduces the likelihood of QE3 in September, but does not take it off the table," said Michelle Meyer, an economist at Bank of America in New York.

Fed policymakers meet next on September 12-13.

Economists polled by Reuters had expected retail sales to rise 0.3 percent. U.S. stocks climbed on the data, as did yields on U.S. government debt. The dollar rose against the yen.


Pointing to a strong increase in consumer spending in July, the so-called core measure of retail sales - which excludes autos, gasoline and building materials - rose 0.9 percent. That was the biggest gain since January.

Stronger consumer spending would help corporations doing business in the United States. Home Depot Inc, the world's largest home improvement chain, reported a quarterly profit that beat Wall Street views on Tuesday and raised its earnings outlook for the fiscal year.

Economic growth in the United States cooled to a 1.5 percent annual rate in the second quarter from a 2 percent pace in the first three months of the year, and economists are now banking on an acceleration.

In the retail report, the government said sales contracted more than previously thought in June, further darkening the view of the second quarter.

The Commerce Department said in another report that sales at all businesses slipped in June by the most since March 2009, which economists said should curb some enthusiasm over the jump in retail sales.

"Given that sales are only marginally higher since the start of the year, households clearly remain cautious," said Amna Asaf, an economist with Capital Economics in Toronto.

And with good reason. Dark clouds continue to loom over the economic outlook.

The euro zone's debt-ravaged economy shrank in the second quarter after flat-lining in the first, a report showed on Tuesday.

Europe's travails have fueled economic uncertainty, and appear to be choking hiring in the United States.

U.S. small business sentiment fell for a third straight month in July as owners worried about sales revenue, according to a survey by the National Federation of Independent Business.


By undercutting global growth, the debt crisis in the euro zone has also pushed oil prices lower since March.

While the Labor Department's index of producer prices, which measures prices received by farms, factories and refineries, climbed 0.3 percent last month on higher costs for consumer goods and food, the gain was muted by a drop in energy prices.

Still, core inflation at the wholesale level accelerated in July. The core measure has held at higher levels even as a sharp drop in energy prices over the past year has pulled overall producer prices lower.

Some policymakers at the Fed worry that further moves to lower borrowing costs could fuel inflation, though the central bank has said it was ready to do more to help the economy if needed.

"This report suggests core inflation will persist despite price swings in food and energy," said Cooper Howes, an economist at Barclays in New York.

(Additional reporting by Lucia Mutikani in Washington and Gertrude Chavez-Dreyfus and Wangfeng Zhou in New York; Editing by Neil Stempleman, Tim Ahmann and Leslie Adler)

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Comments (9)
Chazz wrote:
“…while receipts as gasoline stations advanced 0.5 percent.”

Consumer spending will certainly increase as we move into the future “fueled” by rising fuel prices. Is this a good thing?

Aug 14, 2012 9:06am EDT  --  Report as abuse
totherepublic wrote:
That was July(the past)…this is mid August, the here and now. Gas is almost 4/gal, deisel already is. From what I see and hear…job market has slowed. 163,000 jobs will not even touch the unemplyment rate. What Obummer just did with buying up meat made the upcomming shortage (drought) worse for all but the entitled and the prices are going to sky rocket. If you dreamacrats do not get out of your stupor then we are in big trouble.

Aug 14, 2012 10:06am EDT  --  Report as abuse
MKM23 wrote:
@totherepulic, do you even know what you are talking about? Gas was high in July also. It is pretty ridiculous to blame Obama for the rise in crop prices when there is a drought. Try thinking that one over again.

Aug 14, 2012 10:53am EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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