Retail Sales Perked Up in June

The results were better than expected as consumers went shopping for clothing, furniture and building materials.
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Retail sales rose in June, as consumers went shopping for clothing, furniture and building materials, the Commerce Department said Tuesday.

Sales rose a higher-than-expected 0.5% in the month, after being flat in May. Excluding auto sales, retail sales rose 0.7%, following a 0.1% increase in May. Economists had predicted a 0.3% advance for the so-called ex-auto number.

"We were long due for a balance, given the contraction in April. These numbers were honest, not artificially inflated by any factor, with the consumer not as discouraged by the jobs market," said Lara Rhame, economist at Brown Brothers Harriman and a former

Federal Reserve

economist.

The strong gains in the stock market since March, combined with low borrowing costs, stimulated more spending among shoppers. Price cuts and lower fuel prices also helped boost sales. Economists said that tax deductions and tax-rebate checks are expected to encourage households to keep buying.

But economists said doubts remain about softness in the job market, which could continue to pressure the retail sector.

"Consumer fatigue is growing, despite the low interest rate environment. The job situation is not getting better, wages are beginning to fall, and I believe the economy will remain below potential for the rest of the year, with the consumer staying put," said Rhame.

Unemployment has been gradually rising since the start of the year, reaching a 6.4% rate in June.

Still, consumer spending, which accounts for about three quarters of the U.S. economy, is expected to have grown at a 3% annual pace in the second half, according to

Bloomberg

.

Such spending could propel an economic recovery, and the notion backs up comments made by Fed Chairman Alan Greenspan on Tuesday. He said the economy should accelerate in the next few quarters, aided by tax cuts and higher government spending, and he stressed that the central bank will keep interest rates low "for as long as it takes" to ensure recovery.

Meanwhile, retailers were hit by unseasonably wet spring weather in the Northeast in June, which many economists believe curbed sales.

Wal-Mart

(WMT) - Get Report

said same-store sales grew 2.7%, at the low end of estimates.

Federated Department Stores

saw a 2% decline in sales, while

Kohl's

(KOH)

saw a 2.4% fall in sales during the month.

Separately, a report on New York state manufacturing showed that activity was stronger than expected in June. The Federal Reserve Bank of New York said its Empire State Index slipped to 22.6 in July from 27.6 in June, but the result was better than the reading of 20 that economists had expected.