Retail Results Ride Rise in Gasoline Prices

Retails sales advanced in June by the largest amount in five months, led by a surge in gasoline prices and a slight rebound in the battered auto sector.
Retails sales advanced in June by the largest amount in five months, led by a surge in gasoline prices and a slight rebound in the battered auto sector. (By Paul Sakuma -- Associated Press)
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By Ylan Q. Mui and Neil Irwin
Washington Post Staff Writers
Wednesday, July 15, 2009

Higher gas prices helped boost June retail sales 0.6 percent compared with the previous month, according to government data released yesterday, but economists worried the price at the pump would dampen consumers' discretionary spending in the long run.

Sales at gas stations rose 5 percent in June compared with the previous month, the biggest increase of any category. The price of gas went from $2.50 a gallon to nearly $2.64 in June before moderating at the end of the month.

"That's actually a bad thing," said Paul Ashworth, senior U.S. economist for Capital Economics. "It's not like consumers are getting any more for their money. It's just costing them more to fill up."

Wholesale inflation, meanwhile, came in twice the level analysts expected for June, according to a separate government report.

The producer price index rose 1.8 percent, driven by higher fuel prices. Even excluding volatile food and energy prices, the index rose 0.5 percent, compared to an 0.1 percent drop in May and a forecasted rise of 0.1 percent.

The numbers are consistent with other data in recent months that suggest that the economy is not entering into a dangerous process of deflation, in which falling prices lead people to pull back on spending in a self-reinforcing cycle.

The signs of a stabilizing economy and higher-than expected price increases drove investors to demand higher interest rates on long-term U.S. government bonds. The yield on 10-year government bonds rose 0.1 percent, to 3.47 percent.

Retail sales are vital to the nation's economic health, because consumer spending accounts for roughly 70 percent of the gross domestic product. June marked the second consecutive month of growth, but sales remain 9 percent below the same month last year.

Auto sales had the second-biggest increase at 2.3 percent, which Ashworth characterized as a "classic dead cat bounce," unlikely to point to a true rebound. Electronics and appliance stores also made gains last month, up 0.9 percent, after struggling to persuade shoppers to buy such big-ticket items as flat-panel TVs. Sporting goods stores also rose 0.9 percent, while supermarkets inched up 0.2 percent. But department stores continued to struggle, with sales dropping 1.3 percent, the largest decline of any category.

The report "suggests that real consumer spending continues to stabilize, but is not yet on a firm recovery path," said Patrick Newport, U.S. economist for IHS Global Insight.

Discounting the impact of autos, gas and restaurants, retail sales actually declined 0.2 percent in June from the previous month, according to an analysis by the National Retail Federation, a trade group. NRF chief economist Rosalind Wells said consumers continue to be constrained by the rising unemployment rate and uncertainty about the prospects of recovery.

"Although several economic indicators are starting to show signs of improvement," she said, "it is going to take a few more months -- maybe longer -- for people to feel comfortable spending again."

Industry experts said retailers must remain on guard. According to an analysis by Goldman Sachs and the International Council of Shopping Centers, a trade group, sales at the country's biggest chain stores fell 0.9 percent last week compared with the previous week. Cooler weather and sparse inventory dragged down the results.

"Mother Nature was not kind," Michael P. Niemira, ICSC chief economist, said. "July will likely be another tough month."

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