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Sagging Interest in Motor Vehicles Drives July Retail Sales Down

BY Admin  August 13, 2008 at 1:55 PM EDT

Entrance to Macy's in Calif.; AP photo

On Wednesday, the Commerce Department reported that retail sales dipped 0.1 percent last month when a variety of economic troubles combined to diminish the impact of billions of dollars in government stimulus payments to U.S. households.

“It’s clear that the rebate checks are fading,” Anika Khan, an economist at Wachovia, told the New York Times. “In the second half of the year, retail sales are going to come off a lot more.”

July marked the first decline since sales fell by 0.5 percent in February and it was a worse showing than the flat reading economists had been expecting, the Associated Press reported.

The weakness came after another big slide in motor vehicle sales as Detroit faced its worst sales month in 16 years. Automakers have been battered by the weak economy and record gasoline prices which have cut into demand for their once-popular sport utility vehicles and pickup trucks.

Excluding the big drop in sales of vehicles, retail sales would have posted a 0.4 percent increase. While that was a positive reading, it was still the weakest showing for sales excluding autos in five months.

Gasoline stations noted a big increase of 0.8 percent in sales, but that reflected skyrocketing prices rather than increased demand. Gasoline prices hit an all-time high in July at $4.11 per gallon. Without the big rise in gasoline station sales, retail sales would have fallen by 0.2 percent in July.

Analysts said the poor sales in July, the last month for bulk mailings of stimulus checks, raised concerns about consumer spending going forward.

“Cautious and uncertain consumers are watching their wallets and with the back-to-school shopping season under way, that does not bode well for retailers,” Joel Naroff, chief economist for Naroff Economic Advisors, told the AP.

Macy’s Inc. said Wednesday that its second-quarter earnings dropped slightly and it warned that full-year profits will be below Wall Street expectations.

Saks, Kohl’s, J. C. Penney and Target also reported drops in sales, along with Gap and other popular apparel brands, the Times reported.

The weak labor market, which has played a role in the cutback in consumer spending, has shown few signs of improvement. New claims for unemployment benefits rose last week to the highest level in six years, according to the Labor Department. New applications rose by a seasonally adjusted 7,000 to 455,000 for the week ended Aug. 2.

On Wall Street, stocks fell for a second session after the retail sales report and oil prices rose.

The Labor Department also reported that surging oil prices helped to push up import prices by 1.7 percent in July and left import prices up by 21.6 percent compared to a year ago, the biggest year-over-year reading on record.

In another report, the Commerce Department said that business inventories rose by 0.7 percent in June, nearly double the 0.4 percent gain in May and the biggest increase since last January.