Retail Sales in U.S. Jumped More Than Forecast: Economy

Photographer: David Paul Morris/Bloomberg

Pedestrians pass in front of a Gap Inc. store in San Francisco. Close

Pedestrians pass in front of a Gap Inc. store in San Francisco.

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Photographer: David Paul Morris/Bloomberg

Pedestrians pass in front of a Gap Inc. store in San Francisco.

Retail sales in the U.S. rose more than forecast in July, reflecting broad-based gains that ease concern elevated unemployment will cause consumers to retrench.

The 0.8 percent advance, the biggest since February and first gain in four months, followed a 0.7 percent decrease in June, Commerce Department figures showed today in Washington. Economists projected a 0.3 percent rise, according to the median forecast in a Bloomberg survey. Purchases climbed in all 13 categories, the first time that’s happened since 2005.

Improved sales at merchants such as Gap Inc. (GPS) and TJX Cos. (TJX) indicate American households are looking beyond the global economic slowdown as hiring improves. At the same time, joblessness in excess of 8 percent is keeping consumer spending from surging, consistent with the Federal Reserve’s view that economic growth will “remain moderate over coming quarters.”

“The consumer hasn’t exactly thrown in the towel, which is encouraging because they’ve been battered and bruised in recent months with very slow job growth,” said Millan Mulraine, senior U.S. strategist at TD Securities Inc. in New York. “We’re off to good a start in the third quarter. I do question the sustainability of the current level of spending. It can only be sustained if employment growth accelerates beyond July.”

Stocks erased gains, sending the Standard & Poor’s 500 Index lower for a second day, as a slump in technology and financial shares reversed an earlier increase on the sales figures. The S&P 500 fell less than 0.1 percent to 1,403.93 at the close in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 1.73 percent from 1.67 percent late yesterday.

Growth Estimates

Today’s report showed the retail sales category used to calculate gross domestic product, which excludes sales at auto dealers, building material stores and service stations, increased 0.9 percent, the biggest gain since January, after a 0.2 percent decrease in June.

Economists at Morgan Stanley in New York raised their tracking estimate for growth in the third quarter to a 1.9 percent annual rate after today’s report from a previous estimate of 1.7 percent. Their counterparts at Goldman Sachs Group Inc. boosted it to 2.3 percent from 2.2 percent.

Other reports today showed wholesale prices climbed more than forecast in July and inventories at U.S. companies rose in June at the slowest pace in nine months.

Elsewhere, the euro-area economy shrank in the second quarter after the worsening debt crisis and tougher budget cuts forced at least six nations into recessions.

India Inflation

In Asia, India’s inflation rate unexpectedly reached a 32- month low in July, signaling that the nation’s weakest economic growth in almost a decade is containing prices.

U.S. retail sales were projected to rise following June’s previously reported 0.5 percent drop, according to the Bloomberg survey. Estimates from the 85 economists surveyed ranged from a decrease of 0.2 percent to a gain of 0.8 percent.

The pickup in retail sales last month followed a quarter in which household spending grew at the slowest pace in a year. Consumer purchases, about 70 percent of the economy, expanded at a 1.5 percent annual rate from April to June, according to Commerce Department data.

The gains last month were led by a 0.8 percent increase at auto dealers, a 0.6 percent rise at department stores that was the most since September, and a 0.9 percent advance at electronics and appliance outlets.

Spending increased 0.8 percent at clothing stores and 0.7 percent at general merchandise stores. Health and personal care sales jumped 1.1 percent, the most since May 2011.

Apparel Sales

Sales at Gap, the biggest U.S. specialty-apparel retailer, climbed 10 percent last month from the same period in 2011. Macy’s Inc., the owner of its namesake and Bloomingdale’s department stores, posted a 4.1 percent increase.

“This month we saw broad-based strength across the U.S.,” Sherry Lang, spokeswoman for TJX, said during an Aug. 2 sales conference call. Same-store sales at the owner of the Marshalls and T.J. Maxx chains rose 7 percent in July.

Underpinning consumer demand, payrolls increased by 163,000 in July, the most in five months, according to Labor Department figures. While the improvement eased fears the U.S. labor market may continue stumbling following the second-quarter slowdown, the jobless rate rose to 8.3 percent.

“As we head into the much larger second half of the year, we are mindful that the macro environment remains pressured and uncertain,” Harlan Kent, chief executive officer of Yankee Candle Co. Inc., which sells its products to retailers like Macy’s and Target Corp., said on an Aug. 9 conference call. “We expect cautious consumer spending.”

Fed’s View

The Fed remains cautious about the recovery’s resilience as well. Central bank policy makers said on Aug. 1 they will pump new stimulus if necessary to boost growth and reduce a jobless rate that’s been stuck at 8 percent or higher for more than three years.

A deceleration in inflation is a sign the global economic slowdown is limiting price pressures and giving Fed policy makers leeway to take more action.

Wholesale prices climbed 0.5 percent in July from the same month last year, the smallest year-to-year increase since October 2009, the Labor Department reported. Compared with the prior month, companies paid 0.3 percent more. The median estimate in a Bloomberg survey of 78 economists called for a 0.2 percent gain.

“We’re not terribly worried about inflation at the moment given the general weakness in the economy,” said Jeremy Lawson, senior U.S. economist at BNP Paribas in New York. The Fed’s view, “which will remain so after this data, is inflation is more likely to fall short of their target in the next couple years than exceed it,” Lawson said.

Inventories at American companies rose 0.1 percent in June following a 0.3 percent gain in May, Commerce Department data showed. A 1.1 percent drop in sales, the biggest decrease since March 2009, prompted companies to keep stockpiles lean.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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