Retail sales dip in July, import prices up

WASHINGTON (Reuters) - U.S. retail sales edged down 0.1 percent in July on a big drop at auto dealers, the government said on Wednesday in a report suggesting consumers were straining to keep spending up amid rising prices.

Analysts said the fall in retail sales, the first in five months, showed the buying punch from government stimulus checks was fading and raising chances that consumer spending will falter in the second half, further slowing a sluggish economy.

"The consumer is still under enormous pressure as employment is declining, real wages are down, housing and stock market wealth are down and credit conditions continue to tighten," said economist Nigel Gault of Global Insight in Lexington, Massachusetts.

A separate report showed a bigger-than-expected jump in July import prices and underlined the pressure costlier oil was putting on the economy. Over the past 12 months, import prices have soared 21.6 percent -- the biggest gain on records dating back 26 years.

The slowdown in retail sales reported by the Commerce Department was concentrated in autos as shoppers continued to stay away from showrooms despite an easing in gasoline prices last month.

Auto sales fell 2.4 percent, the biggest drop since April, after a 2.1 percent June drop and were off a whopping 10.5 percent from a year ago.

In recent months, sales of sport utility vehicles and other gas guzzlers have fallen particularly hard as consumers turn to more fuel-efficient cars.

"This data is consistent with our bearish forecast of personal consumption throughout the second half of 2008," said Joseph Brusuelas, chief economist at Merk Investments.

CREDIT CONSTRAINTS

"Going forward a tight credit environment, a deteriorating labor sector and elevated prices will act as a significant constraint on consumption," he said.

U.S. stocks fell on Wednesday as a rebound in oil prices and weak outlooks at some retailers raised anxieties about consumer spending.

The Dow Jones industrial average fell 109.51 points, or 0.94 percent, to 11,532.96, while the Nasdaq Composite Index was down 1.99 points, or 0.08 percent, at 2,428.62.

Labor Department data showed import prices rose 1.7 percent in July. Petroleum prices were up 4 percent from June and were a huge 79.2 percent higher than in July 2007, while nonpetroleum import prices gained 0.9 percent for a second consecutive month.

"There is potential inflation outside of oil, and the credit markets get a little nervous when they believe that food and energy price inflation might spread," said Gary Thayer, senior economist at Wachovia Securities in St. Louis.

The Federal Reserve's policy-making Federal Open Market Committee decided early this month to keep its trendsetting discount rate at a low 2 percent, aiming to help a weak economy as long as possible while global oil prices are moderating.

In another report, the Commerce Department said June business inventories rose a larger-than-expected 0.7 percent despite relatively strong sales. Retailers, however, trimmed their stocks of unsold goods for a second straight month in an evident bid to keep inventories lean for fear that consumer spending will weaken as the year wears on.

The retail sales report was not entirely bleak. Excluding autos, retail sales rose 0.4 percent following an upwardly revised 0.9 percent gain in June. Sales of furniture, building materials and electronics were up from June levels.

PAIN AT THE PUMP

But the impact of higher prices was evident as July gasoline sales rose 0.8 percent after a 4 percent June jump and were 24.6 percent higher than in July last year.

Excluding gasoline, retail sales in July fell 0.2 percent after a 0.1 percent June decline.

Consumers are clearly altering their behavior as costlier food and energy take a bigger bite out of monthly budgets. One way that they are doing so is by driving less.

The Transportation Department said on Wednesday that Americans drove 12.2 billion miles, or 4.7 percent, less in June compared with a year earlier.

It was the eighth month in a row driving declined. Since November, U.S. motorists have driven 53.2 billion fewer miles than they did over the same period a year earlier, topping the total drop of 49.3 billion miles seen in the 1970s.

Gasoline prices have begun edging down but are still so high that, in combination with tight credit, they are making people wary about taking on big financial commitments.

That was apparent in data from the Mortgage Bankers Association showing its seasonally adjusted index of mortgage application activity declined 1.5 percent in the week ended August 8 to 425.9, nearing levels seen in late July, which were the slowest in more than seven years.

The housing market is in its severest slump since the Great Depression and average 30-year fixed mortgage rates rose to 6.57 percent in the August 8 week from 6.41 percent in the previous week.

(Additional reporting by Doug Palmer and Tom Doggett in Washington and Al Yoon and Ellen Freilich in New York; Editing by Andrea Ricci)

((glenn.somerville@thomsonreuters.com; +1-202-898-8377; Reuters Messaging: glenn.somerville.reuters.com@reuters.net)