Consumers are spending: July retail sales rebound

Sales at auto dealers and gasoline service stations
fell again, however.

WASHINGTON (AP) — Consumers went shopping for everything from clothes to furniture last month, helping to calm fears that a key segment of the economy might be faltering.

Retail sales rose 0.3 percent in July, the Commerce Department said Monday in a report that showed strength in a wide array of areas outside of autos.

The rebound came after a 0.7 percent decline in June, the sharpest decline in 16 months. It was originally reported as an even bigger 0.9 percent fall and had raised concerns that soaring gasoline prices and a slumping housing market were beginning to take their toll on consumer spending, which is closely watched by economists because it accounts for two-thirds of the total economy.

But analysts took heart from the July rebound.

“Consumers are holding tough,” said Mark Zandi, chief economist at Moody’s Economy.com. “They are surprisingly resilient in the face of near record high gasoline prices and the unraveling housing market.”

Wall Street results

Zandi and other analysts said as long as consumer spending continues to show gains, it will lessen concerns that the economy could lapse into a recession caused by the worst housing downturn in 16 years and recent turmoil in financial markets caused by spreading problems in credit markets.

Wall Street, which was battered last week by global credit worries, could not hold on to early gains Monday with the Dow Jones industrial average closing down 3.01 points at 13,236.53, according to preliminary calculations.

Wall Street suffered through some stomach-churning days last week because of worries about how credit problems that began in the market for subprime mortgages might spread to other types of loans until the Fed and other central banks around the world added extra money to try to stem fears of a full-blown credit crunch.

While analysts were pleased by the rebound in July retail sales and the upward revisions to activity in earlier months, they cautioned that consumer spending could still be shaken if the financial market problems intensify.

In a third report, the Commerce Department said that businesses built up their inventories by 0.4 percent in June, right in line with expectations. The gain supported the view that inventory rebuilding will help support economic growth in the second half of this year and offset weakness in such areas as housing.

Economy predictions

David Wyss, chief economist at Standard & Poor’s in New York, said he was looking for the overall economy to expand at a rate of around 2.5 percent in the second half, down from the 3.4 percent growth rate of the April-June quarter.

Consumers, who have been the standout performers during the current economic expansion, boosted purchases in a number of areas in July, pushing sales at clothing stores up by 1.3 percent, after a big drop in June, while sales at department stores and general merchandise stores such as Wal-Mart were up by 0.9 percent.

Sales also rose at furniture stores, electronic and appliance stores and health care stores.

Sales fell again at auto dealers, dropping by 0.3 percent after a 2.9 percent plunge in June. Automakers have been struggling with slumping demand in the face of rising gasoline prices for their previously hot-selling sport utility vehicles.

Sales also fell by 0.8 percent at gasoline service stations, reflecting the fact that gas prices have been falling in recent weeks after rising earlier this year.