Consumers Hold Back as U.S. Retail Sales Moderate: Economy

American consumers kept their buying in check for goods other than automobiles in June, exercising a measure of self-restraint that indicates the economy ended the second quarter on a weak note.

Sales at retailers climbed 0.4 percent last month, short of the 0.8 percent gain that was the median estimate of 82 economists surveyed by Bloomberg, according to Commerce Department figures issued today in Washington. Excluding the biggest gain at auto and parts dealers in seven months, demand was little changed from May.

The figures show households are replacing outdated vehicles and furnishing new homes and at the same time cutting back on non-essentials such as electronics and meals at restaurants. Economists at Morgan Stanley and Barclays Plc were among those trimming growth estimates for last quarter after the report.

“The consumer is going to remain a solid performer in the economy, though not a stellar one,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. Price is the second-best forecaster of retail sales over the past two years, according to data compiled by Bloomberg. “Looking forward, we’ll have a slow uptake from an exceptionally weak second quarter.”

Stocks rose, giving the Standard & Poor’s 500 Index its longest winning streak since January, as better-than-estimated manufacturing data and Citigroup Inc. earnings overshadowed the disappointing retail sales. The S&P 500 climbed 0.1 percent to a record 1,682.5 at the close in New York. Treasury securities also advanced, sending the yield the benchmark 10-year note down to 2.54 percent from 2.58 percent late on July 12.

Manufacturing Improves

Manufacturing in the New York region expanded in July at the fastest pace in five months as factories stabilized amid the slowdown in growth, other data showed today. The Federal Reserve Bank of New York’s general economic index climbed to 9.5, the highest since February, from 7.8 last month. Readings greater than zero for the so-called Empire State gauge signal expansion in New York, northern New Jersey and southern Connecticut.

Estimates in the Bloomberg survey for retail sales ranged from no change to a 1.3 percent advance. The reading for May was revised to show a 0.5 percent gain from an initially reported 0.6 percent increase.

Consumer spending, which accounts for about 70 percent of the economy, grew at a 1.5 percent annualized rate in the second quarter compared with the 1.7 percent estimated before today’s report, according to forecasts by economists at Morgan Stanley in New York.

Cutting Estimates

They projected gross domestic product grew at a 0.3 percent rate last quarter, down from a prior projection of 0.5 percent. Their counterparts at Barclays in New York lowered their GDP tracking estimate to a 0.5 percent pace from 0.6 percent.

Eight of 13 major sales categories showed an increase last month, led by a 1.8 percent gain at automobile and parts dealers. Purchases rose 2.4 percent at furniture and home furnishing chains, the most since May 2012.

Gains in household wealth backed by increases in home and stock prices and an improving job market are helping sustain demand for big-ticket items such as motor vehicles. At the same time, households are also grappling with an increase in the payroll tax at the start of the year that reduced take-home pay by about $80 a month for a family with an annual income of $50,000.

“While it’s hard to say for sure, the June retail sales number could indicate that the drag from higher payroll and income taxes may still be weighing on the consumer, even as we approach mid-year,” Michael Feroli, chief U.S. economist at JPMorgan Chase & New York, said in a research note.

Gasoline Sales

Service-station sales rose 0.7 percent after a 0.4 percent increase. Costlier gasoline in early June probably lifted receipts at filling stations. The Commerce Department’s retail sales data aren’t adjusted for changes in prices.

Retail sales excluding autos and gasoline unexpectedly fell 0.1 percent, the first drop in a year.

Receipts at restaurants and bars decreased 1.2 percent in June, the most since February 2008. Sales dropped 2.2 percent at building materials outlets, the most since May 2012. Purchases at department stores fell 1 percent in June, a fifth consecutive decline.

Purchases excluding autos, gasoline and building materials, which render the figures used to calculate GDP, rose 0.1 percent, the smallest advance since January.

Automobile demand remains a bright spot as Americans replace older vehicles. Cars and light trucks sold in June at a 15.89 million annual rate, the fastest since November 2007, according to industry data from Ward’s Automotive Group. Attractive financing offers and steady hiring are also helping generate more industry sales.

Auto Demand

Ford Motor Co. and General Motors Co., makers of the best-selling big pickups in the U.S., reported June sales that beat analysts’ estimates. Low borrowing costs and rising consumer wealth should continue to support spending, according to Jenny Lin, Dearborn, Michigan-based Ford’s senior U.S. economist.

Household wealth has been boosted by a rally in the stock market and higher property values. Home prices in the 12 months ended in April rose by the most in more than seven years, according to the S&P/Case-Shiller index of property values. The Standard & Poor’s 500 Index last week reached a record high.

“Economic indicators continue to improve,” Lin said on a July 2 sales call. The “consumer spending growth pace is slowly picking up.”

Housing Rebound

A rebound in housing is also benefiting economies elsewhere. U.K. home sellers raised asking prices for a seventh month to a record in July, according to a report today by Rightmove Plc. The London-based property-website operator also said values will increase 4 percent this year instead of the 2 percent previously estimated.

Fed Chairman Ben S. Bernanke, in testimony to Congress this week, may shed more light on the central bank’s view of the U.S. economy and whether policy makers will begin scaling back $85 billion in monthly bond purchases. The U.S. needs “highly accommodative” monetary policy for the foreseeable future, he said last week.

Another report today showed companies were in a good position to deal with the slowdown in demand. Inventories rose 0.1 percent in May after a revised 0.2 percent gain in April that was smaller than previously reported, Commerce Department figures showed. Businesses in May had enough goods on hand to last 1.29 months at the current sales pace, the least since February.

Lean stockpiles indicate companies may not need to cut orders even as sales cooled last month.

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