Retail sales drop unexpectedly on weak job growth

Retail sales in the U.S. unexpectedly fell for a third month in June as limited employment gains took a toll on consumers.

The 0.5% drop followed a 0.2% decrease in May, Commerce Department figures showed today (July 16) in Washington. The decline exceeded the most pessimistic forecast in a Bloomberg News survey that called for a median 0.2% gain in sales. Other reports today showed manufacturing in the New York region picked up this month and U.S. inventories increased in May.

Stocks fell as the retail sales report prompted economists at Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse to lower their forecasts for economic growth in the second quarter. A cooling job market is sapping the household spending that makes up 70% of the economy, curbing sales at retailers such as Target Corp. and Macy’s Inc.

“Weak spending growth and weak employment are reinforcing one another in a disconcerting negative feedback loop,” said Jay Feldman, a director of U.S. economics at Credit Suisse in New York, who cut his tracking estimate for second-quarter economic growth to 1.6% from 2%.

Retail sales estimates in the Bloomberg survey of 81 economists ranged from a decrease of 0.4% to a gain of 0.5%. Purchases last fell for three months or longer in July through December 2008.

FURNITURE SALES FALL
Nine of 13 major retail sales categories showed a decline last month, led by a 1.8% slump at gas stations that reflected declining fuel costs. Regular fuel in June averaged $3.49 a gallon, or 22 cents less than in May, according to AAA, the nation’s biggest auto group.

Spending decreased 0.7% at department stores, 0.8% at furniture outlets and 0.6% at motor vehicle and parts dealers. The drop in sales of furniture was the biggest in a year. Demand at building-material stores fell 1.6%.

Industry figures show retailers’ same-store sales slumped in June. Purchases at the more than 20 companies tracked by Retail Metrics Inc. increased 0.3% in June from the same time last year following a 4% gain in May.

Today’s figure on auto dealer sales contrasts with data from Ward’s Automotive Group, which reported that cars and light trucks sold at a 14.1 million annual rate in June, up from the 13.7 million pace in May that was weakest this year.

Consumer spending climbed at a 2.5% rate in the first quarter, according to Commerce Department data. Economists surveyed earlier this month before today’s data forecast it increased at a 1.9% rate from April to June while the economy as a whole expanded at a 1.8% pace.

SPENDING, COMMERCE DATA
• Purchases excluding autos decreased 0.4%, today’s retail sales report showed. They were projected to be unchanged, the survey median showed.

• Sales excluding automobiles and service stations fell 0.2%, compared with a projected gain of 0.2% in the survey.

• The retail sales category used to calculate gross domestic product, which excludes purchases at auto dealers, building material stores and service stations, decreased 0.1% after no change in the previous month.

• Inventories increased 0.3% for a third month in May, Commerce Department data showed. The median forecast in a Bloomberg survey projected a 0.2% gain. Sales fell 0.1% in May for a second month.

• Businesses had enough goods on hand to last 1.27 months at the current sales pace in May, up from 1.26 months in April and the highest in a year.

CONSUMER CONFIDENCE
A less optimistic consumer will probably restrain demand. The Thomson Reuters/University of Michigan preliminary sentiment index for July dropped to the lowest level this year as Americans grew more pessimistic about their finances, a report showed last week.

“People are just pulling back, and you’re not likely to see a significant pickup from here,” said Michael Carey, chief economist for North America at Credit Agricole CIB in New York. “This was certainly a slowdown from the first quarter.”

American employers added fewer workers to payrolls than forecast in June and the jobless rate stayed at 8.2%, a report from the Labor Department showed on July 6. The 80,000 gain in employment followed a 77,000 increase in May. Economists projected a 100,000 rise, according to the median estimate in a Bloomberg survey. Growth in private payrolls was the weakest in 10 months.

Some Federal Reserve policy makers said the central bank will probably need to take more action to boost the labor market and achieve its inflation goal, according to minutes of their June meeting.

Fed Chairman Ben S. Bernanke will address the outlook for the economy when he delivers his semi-annual monetary policy report to Congress tomorrow and July 18. He may hint at steps that can be taken to revive the expansion.

The International Monetary Fund today cut its 2013 global growth forecast as Europe’s crisis prolongs Spain’s recession and slows expansions in emerging markets from China to India. Growth worldwide will be 3.9% next year, less than the 4.1% estimate in April, the fund predicted in an update of its World Economic Outlook.