Retail sales in July rose a modest 0.4 percent, the first increase since April, but appear to be growing at a slower pace than in the sluggish first half of the year, the Commerce Department reported yesterday.
Sales rebounded from the 1.4 percent decline in June and a 0.4 percent drop in May. Business at department stores increased, but automobile sales were down for the second consecutive month.
Purchases by consumers make up about two-thirds of all sales of goods and services in the economy and are closely watched to determine the course of economic growth. However, some private economists said yesterday that consumers' debt is high and income is growing slowly, and suggested that consumer spending will rise at about half the rate it did from January to June, making the prospect of a second-half rebound more remote.
Commerce Secretary Malcolm Baldrige said that the "consumer will be the mainstay of the expansion in the second half of the year." However, he also said that consumer spending in the third quarter appeared to be running at a slower pace than it did during the first half of the year, when the economy grew only 1 percent.
Baldrige said his outlook was upbeat because of high levels of consumer confidence and lower interest rates.
However, economists said that consumer debt is at unusually high levels, at which purchasers stop buying and concentrate on paying off debt. Additionally, in the first half of the year, consumers spent at a rapid rate, much faster than their incomes grew, forcing them to reduce their savings.
"To keep spending at a growth rate above income, it would take more declines in the savings rate, which is not likely at this time," said Charles Lieberman, a vice president at Shearson Lehman Brothers and an expert on consumer behavior.
Lieberman said that incomes are growing at a much slower rate than they did earlier in the economic expansion, another indication that spending will not increase very much.
"Consumer spending will be a lot more sluggish" the rest of the year than in the first half, Lieberman predicted. Consumer spending grew at a 5 percent rate in the first half and probably will grow at half that pace through December, he said.
"It would take a pretty substantial decline in the savings rate to sustain 5 percent growth," Lieberman said.
The government is counting on faster consumer spending to strengthen the economy. The administration is forecasting a 5 percent growth rate in the second half, although many private economists are predicting only half that rate.
Economists said that because consumer spending accounts for such a large share of economic activity, business spending and housing sales will have to improve, and more spending will have to go to domestic goods and less to imports, for the second-half rebound to be significant.
"For the economy to do reasonably well, everybody else will have to take up the slack," Lieberman said.
"The advance report on retail sales does little to suggest that the basic trajectory of the economy will change over the next few months," said Jerry Jasinowski, chief economist of the National Association of Manufacturers.
"While there was a mild improvement over June, retail sales are still below their level of May. Sales would normally be expected to pick up more rapidly in view of the decline in interest rates, but the sluggishness of consumer activity may have to do with the high level of installment debt, which has forced a belated retrenchment on the part of consumers."
Total retail sales last month were a seasonally adjusted $113.74 billion, up from $113.29 billion in June. Sales in May were $114.88 billion.
Durable goods sales rose 0.7 percent in July, following a 2.5 percent fall in June. Nondurable goods sales increased 0.2 percent in July after declining 0.7 percent in June.
Excluding automobile sales, total retail sales in July increased 0.7 percent, following a 1.3 percent decrease the previous month. Automobile sales in July dropped 0.5 percent, following a 1.9 percent fall in June.