U.S. Retail Sales Rise, Reflecting Autos and Gasoline (Update2)

The problem is that the temporary uptick in gasoline prices has been pretty much reversed. Meanwhile, automobile sales are flat to down from last year. If nothing else is changing, can you guss the results for the third quarter?

U.S. Retail Sales Rise, Reflecting Autos and Gasoline (Update2)

By Shobhana Chandra

July 14 (Bloomberg) -- Sales at U.S. retailers rose in June, helped by incentives at car dealers and higher gasoline prices that boosted service-station receipts.

The 0.6 percent increase was larger than forecast and the biggest gain since January, Commerce Department figures showed today in Washington. Purchases excluding automobiles and gasoline dropped for a fourth consecutive month.

Consumers are seeking discounts at chains such as TJX Cos. and 99 Cents Only Stores, and are favoring necessities such as food and fuel over discretionary items. While the increase in total purchases reinforces forecasts for economic growth to resume this quarter, analysts anticipate job losses and falling home values will weigh on household budgets and mute a recovery.

“Consumers are still very cautious,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “We need the labor market to pick up for the improvement to continue. The economy is still on track for a weak recovery in the second half of the year.”

A separate government report today showed wholesale prices rose twice as much as anticipated in June, also reflecting a surge in gasoline costs. The Labor Department’s producer-price index increased 1.8 percent after a 0.2 percent gain in May.

Treasuries, Stocks

Treasuries dipped after the reports, sending benchmark 10- year note yields up to 3.41 percent at 8:55 a.m. in New York from 3.35 percent late yesterday. Futures on the Standard & Poor’s 500 Stock Index rose 0.2 percent to 899, helped by higher earnings at Goldman Sachs Group Inc.

Retail sales were projected to rise 0.4 percent in June after a 0.5 percent gain in May, according to the median estimate of 74 economists in a Bloomberg News survey. Forecasts ranged from a gain of 1.2 percent to a 1 percent decline.

Excluding automobiles, sales increased 0.3 percent after a 0.4 percent May gain. They were forecast to increase 0.5 percent, according to the survey median.

Excluding autos, gasoline and building materials -- the retail group the government uses to calculate gross domestic product figures for consumer spending -- sales dropped 0.1 percent, the same as in the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

Auto Sales

Sales at automobile dealerships and parts stores climbed 2.3 percent, the most since January. Industry figures released earlier this month, the ones used to calculate GDP, showed a drop in sales. Purchases declined to a 9.7 million annual pace from a 9.9 million rate in May, according to data from Woodcliff Lake, New Jersey-based Autodata Corp.

Sales plunged 42 percent from a year earlier at Auburn Hills, Michigan-based Chrysler Group LLC, and dropped 34 percent at General Motors Corp., located in Detroit. The carmakers, two of the three biggest in the U.S., are restructuring after emerging from bankruptcy.

Higher fuel prices helped service stations. Filling station sales jumped 5 percent, the same as in May, today’s report showed. Regular unleaded gasoline averaged $2.64 a gallon at the pump in June, up 35 cents from the prior month, according to AAA.

Excluding gasoline, retail sales climbed 0.3 percent.

Sales also improved at electronics, grocery and sporting goods stores. Demand slumped at furniture and department stores, and at restaurants.

Consumer Confidence

The Reuters/University of Michigan preliminary index of consumer sentiment fell by more than forecast in July, figures showed last week, and a gauge of expectations for six months from now, which projects the direction of consumer spending, plunged by the most since October.

Government efforts to restore the flow of credit and prop up incomes, through tax cuts and supplemental Social Security payments from the Obama administration’s stimulus plan, are allowing consumers to spend even as they fret about jobs.

The economy has lost 6.5 million jobs since the recession started in December 2007, the worst of any downturn since World War II, and gross domestic product contracted at a 5.5 percent annual rate in the first quarter, the third consecutive drop.

Growth will average 1.5 percent in the July-to-December period after another contraction in the second quarter, according to a Bloomberg survey taken from July 2 to July 8. The jobless rate, meanwhile, will exceed 10 percent early next year and average 9.8 percent for 2010, the survey said.

Sales at Discounters

June sales at stores open at least a year climbed at discounters such as Framingham, Massachusetts-based TJX, owner of T.J. Maxx and Marshalls stores, and Pleasanton, California- based Ross Stores Inc., owner of the Ross Dress for Less chain. Both companies raised their second-quarter profit projections.

Price-conscious customers also drove up sales in the quarter ended in June at City of Commerce, California-based 99 Cents, which sells groceries, electronics and health and beauty items.

“Many middle-to-upper-income consumers are coming into our stores for the first time for their household needs due to the recession,” Chief Executive Officer Eric Schiffer said in a July 9 statement.

Some retailers whose June sales fell more than analysts forecast included San Francisco-based Gap Inc., operator of the Old Navy and Banana Republic chains, and Abercrombie & Fitch Co., a teen-clothing retailer based in New Albany, Ohio.

The International Council of Shopping Centers predicted July retail sales will decline again following a drop in June. Even so, shoppers are no longer shunning purchases altogether. Consumer spending, which accounts for 70 percent of the economy, will probably rise 1 percent from July to September, after contracting in the second quarter, economists in the Bloomberg survey said.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

Last Updated: July 14, 2009 08:57 EDT