Retail sales, home contracts rise modestly

By Jia Lynn Yang
Washington Post Staff Writer
Thursday, September 2, 2010; 9:28 PM

Americans have not lost their will to spend, according to a modest and surprising bump in retail sales last month and the number of contracts signed by home buyers in July.

Retailers reported that sales at stores open more than a year rose 3.3 percent last month compared with a year earlier.

And after recent dismal numbers on home sales, a glimmer of hope in the real estate market emerged Thursday when the National Association of Realtors reported that pending home sales in July were up 5.2 percent from the previous month, well above expectations.

With fears of a double-dip recession looming, the decent news Thursday suggested stability in the economy.

Still, the picture of where things are headed remains muddy. Other data released on the same day about joblessness, factory orders and productivity underscored the fragility of the recovery.

And the economy remains hampered by high unemployment, which is at 9.5 percent. The government's monthly jobs report comes out Friday, and most analysts expect the jobless rate to rise to 9.6 percent.

If the projection is correct, it will be the first time the unemployment rate has increased in four months - potentially creating a headache for Democrats heading into the November mid-term elections.

First-time jobless claims fell for the second straight week, down by 6,000, to 472,000, the Labor Department said Thursday. But the overall figure remains high. The number of claims has been hovering just below 500,000 for about nine months.

Orders at U.S. factories rose 0.1 percent, suggesting that companies remain hesitant to spend money and invest in equipment. Demand for machinery and computers was down.

The Labor Department also reported that U.S. productivity dropped 1.8 percent in the second quarter, double what the government initially estimated. Lower productivity is somewhat a double-edged sword. It can pressure corporations to increase their workforce to make up for the loss in efficiency, but it can also put a dent into their profits.

Analysts were surprised by the burst of retail activity, attributing the gains in sales to discounts for the back-to-school shopping season. According to a summary of 27 retailers by Thomson Reuters, two-thirds of the chains reporting sales beat expectations.

By contrast, at this time a year ago, same-store sales slumped 2.9 percent.

"Things are mixed but not really falling off a cliff," said Andrew Wolf, retail and consumer analyst for BB&T Capital Markets.

Costco performed well, reporting same-store sales up 5 percent, handily beating analysts' expectations. Sales at Kohl's were up 4.5 percent, those at Macy's rose 4.3 percent and Target posted a 1.8 percent gain.

The real estate industry has been craving good news since a report last week showed that existing home sales in July dropped to their lowest level in 15 years.

With the number of contracts signed in July rising 5.2 percent - analysts had predicted it would decline by 1 percent - the housing market could soon see relief, because signed contracts typically translate into sales after a month or two.

"The news isn't terrible. But it's not great, either, especially when you consider that mortgage rates are the lowest in recorded history," Mike Larson, a real estate and interest rate analyst at Weiss Research, wrote in a note. "We should be seeing more sales with financing so cheap. The fact we're not speaks to the severity of the jobs crisis and the ongoing lack of confidence in the future direction of home prices."

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