Retail Sales in U.S. Stagnate as Rising Unemployment Keeps Consumers Away

Photographer: David Paul Morris/Bloomberg

Ariel Perez, left, Ivan Llanez, center and Yosmel Montejo of Cuba shop for shoes at the Nike Inc.'s Niketown store in downtown San Francisco, California, U.S., on Thursday, June 16, 2011. Close

Ariel Perez, left, Ivan Llanez, center and Yosmel Montejo of Cuba shop for shoes at the... Read More

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Photographer: David Paul Morris/Bloomberg

Ariel Perez, left, Ivan Llanez, center and Yosmel Montejo of Cuba shop for shoes at the Nike Inc.'s Niketown store in downtown San Francisco, California, U.S., on Thursday, June 16, 2011.

Sales at U.S. retailers stagnated in June, highlighting weakness in consumer demand that accounts for 70 percent of the economy.

Purchases rose 0.1 percent, the Commerce Department said today in Washington. Sales excluding autos were little changed, the poorest performance since July 2010. Wholesale prices fell more than forecast in June on lower energy costs, the Labor Department said.

Americans contending with declining home values and unemployment above 9 percent are holding back on spending, prompting retailers such as Target Corp. to sweeten discounts. Another report today showed that first-time claims for unemployment benefits fell last week to the lowest level since April, indicating dismissals may start to abate.

“The soft patch is likely to linger for a few more months,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Even with the drop in energy prices we’ve seen recently, consumers’ purchasing power is still being stretched. Businesses are incredibly cautious about hiring workers right now.”

Stocks declined as Federal Reserve Chairman Ben S. Bernanke said the central bank isn’t prepared to take immediate action to stimulate the economy. The Standard & Poor’s 500 Index dropped 0.7 percent to 1,308.87 at the 4 p.m. close in New York. Treasuries fell, pushing up the yield on the benchmark 10-year note to 2.95 percent from 2.88 percent late yesterday.

Fed’s Bernanke

“We’re not prepared at this point to take further action,” Bernanke said today, in response to a question from Senate Banking Committee Chairman Tim Johnson, a Democrat from South Dakota. Johnson asked Bernanke why the Fed wasn’t immediately starting a new stimulus program given the weak economic recovery and rising unemployment.

Consumer confidence rose last week as households became more upbeat about the state of their finances. The Bloomberg Consumer Comfort Index increased to minus 43.9 for the period ended July 10 from minus 45.5 the prior week. Even with the gain, which is within the survey’s 3-point margin of error, the gauge is lower than it was at the start of the year.

A measure of consumers’ views of the economy dropped to the lowest level since the end of March. Eight percent of consumers rate the economy positively, according to today’s report.

Bernanke told the Senate Banking Committee today that “in the near term, the recovery is rather fragile,” with “confidence pretty low” among consumers.

Sales and GDP

Retail sales excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, rose 0.1 percent, the smallest gain this year.

After the retail sales data, economists at Morgan Stanley and Deutsche Bank Securities Inc. in New York were among those cutting tracking estimates for second-quarter consumer spending. Morgan Stanley economists lowered their forecast to 0.4 percent at an annual pace from a prior projection of 0.9 percent.

The lack of momentum at the end of the quarter also prompted them to cut estimates for the gain in household purchases in the July through September period to 2.6 percent from 2.9 percent.

Economists’ estimates for retail sales ranged from a decline of 0.7 percent to a gain of 0.5 percent. The unchanged reading in non-auto purchases matched the Bloomberg survey median.

Six Decline

Six of 13 major categories showed a decline in sales last month, led by a 1.3 percent drop at gasoline stations and 0.8 percent decrease at furniture stores.

Auto dealers, department stores and building material merchants were among the gainers.

Car sales showed a 0.8 percent increase, running counter to industry data that is used to calculate gross domestic product. Sales of cars and light vehicle ran at a seasonally adjusted 11.41 million annual rate in June, down from 11.76 million in May and 13.14 million in April, according to researcher Autodata Corp.

Toyota Motor Corp. (7203) and Honda Motor Co. deliveries each fell 21 percent from the same month last year, reflecting supply- chain constraints linked to Japan’s March earthquake, while General Motors Co. (GM) and Ford Motor Co. (F) said sales rose 10 percent.

“The Japan crisis in and of itself was contributing to the slowdown, and that’s starting to be behind us,” GM’s vice president for U.S. sales Donald Johnson said on a July 1 teleconference. “While we’ve had these couple of bumps, we believe that the recovery will be back on track.”

Jobless Claims

Applications for unemployment benefits decreased 22,000 in the week ended July 9 to 405,000, Labor Department figures showed today. Economists forecast 415,000 claims, according to the median estimate in a Bloomberg survey. The data included fewer layoffs in the auto industry than typical this time of the year, according to an agency spokesman.

Jobless claims have been above 400,000 since the week ended April 1, helping explain why companies are trying to keep a lid on prices. Discounts to clear inventory ahead of the back-to- school season helped June sales at chain stores beat analysts’ estimates. Target Corp. (TGT), the second-largest U.S. discount retailer, posted a 4.5 percent increase from a year earlier, while demand at Gap Inc. rose 1 percent, the stores reported last week.

The Labor Department said today that producer prices dropped 0.4 percent in June as energy costs fell the most in two years. The median forecast in a Bloomberg survey called for a 0.2 percent decrease.

The so-called core measure, which excludes volatile fuel and food costs, increased 0.3 percent in June. The gain was more than projected, with almost half of the increase tied to the biggest rise in light truck prices since November 2009, the Labor Department said.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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