U.S. Retail Sales Stall on Lack of Job Growth

Retail sales in the U.S. unexpectedly stagnated in August as a lack of employment and limited income growth restrained demand, highlighting the risk the economy will stall.

The unchanged reading followed a 0.3 percent gain for July that was smaller than previously estimated, Commerce Department figures showed today in Washington. Prices paid by producers were also unchanged in August, according to the Labor Department, while so-called core costs that exclude food and fuel rose less than forecast.

Retailers like Best Buy Co. and Target Corp. (TGT) are saying a struggling job market that has battered consumer confidence is hurting sales. The dim outlook for household spending, which accounts for about 70 percent of the economy, will make it harder for the two-year old recovery to gain speed, giving the Federal Reserve reason to take additional steps to spur growth.

“Consumers are being more cautious given all the economic headwinds,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Policy makers have to be focused on growth because growth seems to have come close to stalling in August.”

Signs inflation is limited may make it easier for Fed officials to ease monetary policy further if they deem it necessary. The producer price index was unchanged after a 0.2 percent increase in July, the Labor Department said. The core measure of wholesale prices rose 0.1 percent.

Inventories Rise

Another report from the Commerce Department showed inventories rose less than forecast in July, indicating companies are bracing for a slowdown in demand. The 0.4 percent increase in stockpiles matched the revised gain in June that was larger than initially estimated. The median projection in a Bloomberg News survey was for a 0.5 percent advance. Sales climbed 0.7 percent in July, the most since March.

Stocks rallied, sending the Standard & Poor’s 500 Index higher for a third day as German and French leaders expressed support for Greece to remain in the euro monetary union. The S&P 500 rose 1.4 percent to 1,188.68 at the 4 p.m. close in New York. Treasuries fell, pushing the yield on the benchmark 10- year note up to 2 percent from 1.99 percent late yesterday.

The median forecast of retail sales by 83 economists surveyed by Bloomberg News called for a 0.2 percent rise. Estimates ranged from a gain of 0.7 percent to a decline of 0.5 percent. The Commerce Department revised the July increase down from a previously reported 0.5 percent advance.

Clothing Sales

Eight of 13 major categories showed gains last month, led by grocery and sporting goods stores. Demand declined for big- ticket items like automobiles and furniture. Sales at clothing stores dropped 0.7 percent, the biggest drop since December.

Retail sales aren’t adjusted for inflation, indicating demand may have dropped after taking prices into account.

Purchases at automobile dealers dropped 0.3 percent after rising 0.2 percent in July, today’s report showed. The results are in sync with industry figures. Cars and light trucks sold at a 12.1 million seasonally adjusted annual rate in August, down from a 12.5 million pace in the first half of the year and little changed from July, according to researcher Autodata Corp.

Purchases excluding autos increased 0.1 percent, today’s report showed. They were projected to rise 0.2 percent, the survey median showed.

The auto industry is trying to recover from supply disruptions caused by Japan’s earthquake in March, which hurt production, availability and sales.

Worst This Year

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales were unchanged, the weakest performance so far this year, after a 0.3 percent increase in July.

Spending on cars and appliances is threatened by a lack of job creation. Payrolls in the world’s largest economy stagnated last month, and unemployment held at 9.1 percent, Labor Department figures showed earlier this month.

The risk of a broader pullback in the economy has increased pressure on the Fed, Obama administration and Congress to step up efforts to spur the economy.

A plan from President Barack Obama, announced before a joint session of Congress on Sept. 8, called for an extension of a payroll-tax break for Americans and unemployment assistance. He also pushed for a payroll tax break for small businesses, an increase in infrastructure spending and more aid for cash- strapped state governments.

More Pessimism

Americans’ pessimism about the economy has deepened, with 20 percent saying the U.S. is on the right course. Some 9 percent of people say they are confident the economy won’t slide back into recession, according to a Bloomberg National Poll.

A majority of Americans don’t believe Obama’s $447 billion jobs proposal will help lower the unemployment rate, the poll, conducted Sept. 9-12 by Selzer & Co. of Des Moines, Iowa, showed.

Best Buy, the world’s largest consumer-electronics retailer, yesterday cut its full-year earnings forecast. The Richfield, Minnesota-based chain also reported a 30 percent decline in second-quarter profit.

“The consumer is making very measured choices,” Chief Executive Officer Brian Dunn said in a telephone interview yesterday. “I don’t think it’s a year where someone is going to buy a TV and a tablet and a new smartphone and go to Disneyland.”

Sales gains at Minneapolis-based Target, the second-largest U.S. discount retailer, are “a bit more challenging” than expected at the beginning of the year, Douglas Scovanner, chief financial officer, said at a Sept. 8 conference.

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

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

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