Auto sales soar in August; retail figures surpass expectations

WASHINGTON (AP) — Hopes for an economic recovery drew support Tuesday from retail sales figures that topped expectations. But weak results from two major stores sent a more sobering message: Americans probably aren’t ready to spend in force again.

Auto sales soared in August, partly because of Cash for Clunkers government rebates. Even apart from autos, sales gains came in ahead of what analysts were looking for.

But lackluster sales reports from Best Buy and Kroger signaled that shoppers remain wary. And with the job market still weak, wages flat and credit tight, economists warned that the August gains could be short-lived.

Federal Reserve Chairman Ben Bernanke said Tuesday that while the recession is probably over, at least technically, “it’s still going to feel like a very weak economy for some time.”

The Commerce Department reported that retail sales rose a seasonally adjusted 2.7 percent last month after falling 0.2 percent in July. That’s the largest gain since January 2006 and easily beat analysts’ expectations.

While the figures were welcome, “we need more data to see if this is sustainable or just noise,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a research note. “The income and credit constraints on consumers remain intense.”

Auto sales were up 10.6 percent, the biggest gain in almost eight years, mainly because of the recently ended clunkers program. Gas station sales increased 5.1 percent, as prices at the pump rose.

Excluding those two categories, sales rose 0.6 percent, the most in six months.

“That’s a pretty good rate — if it was sustained,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight.

Consumer spending accounts for about 70 percent of the nation’s economy. Analysts note that Americans are saving more even as their incomes stay flat. If they don’t consistently spend more, the economic recovery could weaken next year.

Retail sales last month were helped by tax holidays in several large states, including California, Texas and Florida. In addition, school openings were delayed in some places because of budget constraints. Both factors probably pushed some back-to-school sales from July into August — thereby boosting last month’s retail sales numbers, Bethune said.

With government incentives no longer available, auto sales will probably fall in coming months. Bethune called it “the hangover from Cash for Clunkers.” He expects consumer spending to rise 2.5 percent this quarter, then slip later this year.

The recession has cut so deeply that even as retail sales show signs of life, they remain substantially below levels of a year ago.

Kroger Co., the nation’s largest grocery chain, said most shoppers are buying only what they need for the week — or just their next meal — and show signs of running out of money by the end of the month. They’re also trading down even among store brands, increasingly choosing the cheapest option.

Store traffic is up slightly at Best Buy Co. Inc., but it, too, said shoppers are spending less. The company raised its conservative sales and earnings expectations but said the weak economy would keep a lid on spending.

Even though it was helped by the bankruptcy of Circuit City, Best Buy’s U.S. sales at stores open at least 14 months, a key indicator, still fell 3.1 percent.

“Consumers are nervous, and are looking at every purchase with equal importance, from the large-ticket items to what they’re eating for lunch or dinner,” said Doug Conn, managing director of New York-based Hexagon Securities.