Retail sales down in June, for second consecutive month of falling receipts

By Ylan Q. Mui
Washington Post Staff Writer
Thursday, July 15, 2010

U.S. retail sales flopped again in June, according to government data released this morning, as drops in auto purchases and gasoline prices dragged spending down 0.5 percent from a month ago.

This is the second consecutive month of flagging sales, dimming hopes for the consumer revival that is critical to sustain an economic turnaround. But stubbornly high unemployment coupled with the sluggish pace of recovery have weighed heavily on consumers' wallets.

The biggest fall last month came in auto sales, which plunged 2.3 percent. But even excluding motor vehicles, retail sales were still down 0.1 percent.

"There looks to be sort of mild deceleration even into the month of July," said Steven Wieting, managing director of economic and market analysis for Citigroup. "All told, this is slowdown material."

Gas receipts also pulled down the results, dropping 2 percent in June. Government data show the average price of regular gasoline declined from $2.86 per gallon in early May to $2.67 in early June, a nearly 7 percent decrease.

But a drop in fuel prices can encourage shoppers to spend more discretionary dollars in other areas. June showed a 1.3 percent jump in sales at electronics and appliance stores and a 0.6 percent increase in spending at clothing stores. Sales at general merchandise stores rose 0.2 percent, and drugstore receipts rose 0.5 percent.

"What it is showing is there is no trend in consumer spending," said William Cheney, chief economist at John Hancock Life Insurance. "We're at a point in the cycle where we need a new trend -- we need an uptick. This isn't it."

The breathing room created by lower gas prices is particularly important in a stagnant job market with little wage growth to fuel new spending. Consumers also seem unwilling -- or perhaps unable -- to tap into their credit cards or other loans to boost their disposable income. Americans' outstanding credit card debt dropped in May to $831 billion, down 4 percent from the end of last year, according to government data released last week.

In a June survey by consulting firm Kantar Retail, 47 percent of consumers said they have seen no change in household income. But about 18 percent said they felt worse off about their credit card debt, up two percentage points from the previous month.

Economists had hoped that the shoppers' spending freeze was beginning to thaw after the holiday season as retail sales posted several consecutive months of solid gains. Some of that was driven by government stimulus money that has now phased out, such as the home buyers' tax credit that spurred jumps in sales at building and material stores.

Andrew Wolf, retail and consumer analyst for BB&T Capital Markets, called June's retail sales a "slowdown in momentum" but noted that the numbers are an improvement over a year ago in nearly every category. Total retail sales are up 4.8 percent from June 2009, while auto sales have risen 6.8 percent and furniture stores are up 1.7 percent.

Wolf said that makes him more confident about the prospects for the second half of the year.

"There's still a recovery underway," he said.

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