Retail Sales in U.S. Probably Fell for Second Month as Economy Moderated

Retail sales in the U.S. fell in June for a second month and industrial production cooled, signs the expansion will moderate in the second half, economists said before reports this week.

Purchases fell 0.3 percent after a 1.2 percent decline in May, according to the median estimate of 59 economists in a Bloomberg News survey ahead of figures due July 14. Production at factories, mines and utilities declined 0.1 percent last month, the Federal Reserve may report the next day.

Target Corp. and Gap Inc. were among retailers whose sales in June trailed forecasts as limited hiring and reduced housing wealth restrain spending, which accounts for 70 percent of the economy. Few price pressures and signs of slower growth encouraged Fed policy makers last month to renew a pledge to hold interest rates close to zero.

“Consumer spending is subdued and economic growth isn’t going to be as strong as we’ve had,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts. “With employment still weak and asset prices under pressure, the drumbeat of downbeat news is holding things down. Inflation isn’t an issue for the Fed.”

The Commerce Department’s retail sales report will show purchases excluding automobiles were unchanged last month, according to the survey median.

Auto sales fell to an annual pace of 11.1 million vehicles last month from May, industry data showed. General Motors Co. and Ford Motor Co., the two largest U.S. automakers, reported lower-than-anticipated sales.

European Debt Crisis

Europe’s debt crisis, which has pushed share prices lower and shaken consumer and business confidence, poses a risk to the U.S. recovery. The Standard & Poor’s 500 Index has fallen 11 percent from its April 23 high. The S&P Supercomposite Retailing gauge is down 20 percent from this year’s peak on April 26.

“Less supportive” financial conditions were cited by Fed officials on June 23, when they reaffirmed forecasts for a “moderate” pace of growth and kept interest rates unchanged. Minutes of the meeting are due on July 14, and policy makers will also release their updated economic forecasts.

The outlook for household spending also reflects the waning of government incentives such as rebates to buy energy-efficient appliances that spurred retail sales earlier this year.

While an industrywide measure of sales at stores open at least a year rose in June for the 10th consecutive month, results trailed analysts’ estimates. Sales last month at 30 chains rose 3.1 percent after a 2.7 percent gain in May, Retail Metrics Inc. said on July 8. Analysts estimated a 3.5 percent increase.

Target, American Eagle

Minneapolis-based Target, the second-largest U.S. discount retailer, reported a gain that included strong demand for food and clothing and “particularly soft” purchases of electronics and music.

Teen clothing chain American Eagle Outfitters Inc. posted a drop from a year earlier compared with forecasts for an increase, and said weak sales necessitated deeper promotions. Sales were unchanged at Gap, the San Francisco-based owner of Gap, Banana Republic and Old Navy stores.

“June was a difficult month with lighter traffic than we anticipated,” Gap’s Chief Financial Officer Sabrina Simmons said in a July 8 statement.

Department stores fared better last month as price cuts and record high temperatures on the East Coast pushed more shoppers into air-conditioned malls. Nordstrom Inc., J.C. Penney Co. and Macy’s Inc. topped analysts’ average estimates.

Consumer Spending Forecast

Economists trimmed projections for consumer spending this year, to an average of 2.4 percent from 2.5 percent a month ago, according to a Bloomberg monthly survey taken July 1 to July 8. They also marked down the 2010 growth estimate and said the jobless rate, which reached a 26-year high of 10.1 percent in October 2009, will average 9.6 percent this year.

Manufacturing, which has fueled the recovery that began in the middle of 2009, also is settling into a more sustainable pace as companies see less need to rebuild inventories and wait for demand to strengthen.

Economists forecast a July 15 report from the Fed will show a drop in industrial production in June after a 1.3 percent surge the previous month.

The same day, regional Fed figures are forecast to show New York area factories expanded at a slower pace in July, while manufacturing growth in the Philadelphia region was little changed.

Inflation receded in June, Labor Department reports are forecast to show. The consumer price index declined 0.1 percent in June after falling in May, according to the Bloomberg survey before the July 16 report. Excluding food and energy, core consumer prices rose 0.9 percent from the same month in 2009, matching the smallest year-over-year gain since 1966, the survey showed.

Import prices declined for a second month, while producer costs were down for the third consecutive time, reports earlier in the week may show.

                        Bloomberg Survey

==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
Trade Balance $ Blns      7/13      May      -40.3     -39.0
Retail Sales MOM%         7/14      June     -1.2%     -0.3%
Retail ex-autos MOM%      7/14      June     -1.1%      0.0%
Import Prices MOM%        7/14      June     -0.6%     -0.4%
Business Inv. MOM%        7/14      May       0.4%      0.3%
Empire Manu. Index        7/15      July      19.6      18.0
PPI  MOM%                 7/15      June     -0.3%     -0.1%
Core PPI MOM%             7/15      June      0.2%      0.1%
Ind. Prod. MOM%           7/15      June      1.3%     -0.1%
Cap. Util. %              7/15      June     74.1%     74.2%
Philly Fed Index          7/15      July      8.0       10.0
CPI  MOM%                 7/16      June     -0.2%     -0.1%
Core CPI MOM%             7/16      June      0.1%      0.1%
Core CPI YOY%             7/16      June      0.9%      0.9%
U of Mich Conf. Index     7/16     July P     76.0      74.0
==============================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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