July Retail Sales Rise, Jobless Claims Decline

Aug. 12 (Bloomberg) -- U.S. retail sales rose last month and initial jobless claims unexpected declined to the lowest level in five weeks, signs that the economic expansion regained momentum in the third quarter.

Retail sales increased 0.7 percent to a $336.5 billion annual rate as Americans spent more on autos and furniture, the Commerce Department said in Washington. The increase follows a 0.5 percent decline in June that wasn't as deep as first reported. The number of Americans seeking first-time jobless benefits fell by 4,000 to 333,000 last week, the Labor Department said.

Sales ``bode well for the second half of the year,'' H. Lee Scott, chief executive officer of Wal-Mart Stores Inc., said on a recording after the world's largest retailer reported quarterly profit rose 16 percent. ``Growth in employment and real income will lessen the impact'' of higher gasoline and energy costs.

Consumer spending may be recovering after expanding last quarter at the slowest pace since the 2001 recession, said economists including David Greenlaw of Morgan Stanley and John Ryding of Bear, Stearns & Co. in New York. The Federal Reserve this week raised its benchmark interest rate for the second time this year, saying the recent slowdown was likely temporary and that inflation was under control.

The retail report ``provides a better ramp heading into the third quarter,'' said David Greenlaw, Morgan Stanley's chief U.S. fixed income economist. Consumer spending now may grow at a 4.3 percent annual pace this quarter compared with a previously estimated gain of 3.5 percent, Greenlaw said.

Forecasts

Inventories at U.S. companies increased in June by the most in four years as retail sales fell that month, the Commerce Department said today. U.S. companies paid 0.2 percent more for imported goods and materials last month than in June, as prices for oil, chemicals and metals rose, the Labor Department said.

Economists had expected retail sales to rise 1.2 percent to $335.9 billion, based on the median forecast of 71 estimates. While July was less than the forecast, that was mitigated in part by the upward revision to June, which was previously reported as a 1.1 percent decline. Retail sales account for almost 60 percent of all consumer spending.

``The weakness that was apparent in earlier months likely overstated the weakness in consumer spending,'' said Richard DeKaser, chief economist at National City Corp., in Cleveland.

Initial jobless claims fell for a second straight week and were the lowest since the week ended July 2, the Labor Department said. The median forecast was for claims to rise to 340,000. The four-week moving average fell to 339,250 from 343,500.

The benchmark U.S. 10-year Treasury note fell 1/8 point, pushing its yield to 4.29 percent at 10:39 a.m. in New York from 4.27 percent yesterday.

Auto Sales

Auto sales rose in July as General Motors Corp. and other automakers boosted discounts after cars and light trucks sold in June at the slowest pace in six years. The average incentive was $3,991 per vehicle during the first half of July, up from $3,667 in June and $3,983 in July 2003, according to CNW Marketing Research in Bandon, Oregon.

Excluding vehicles and parts, July sales rose 0.2 percent after rising 0.3 percent a month earlier. Sales excluding automobiles were forecast to rise 0.4 percent after an initially reported 0.2 percent drop in June, according to the median forecast in a Bloomberg survey.

Sales at automobile dealerships and parts store rose 2.4 percent last month after falling 3 percent. Furniture sales increased 1.1 percent after rising 2.6 percent.

Sales at general merchandise stores, which include department stores, rose 1 percent last month after falling 0.2 percent in June. Department store sales rose 0.2 percent. Sales at clothing and accessory stores fell 0.1 percent after declining 0.5 percent.

Wal-Mart

Bentonville, Arkansas-based Wal-Mart said today that same- store sales rose 4.1 percent in the second quarter from the same three months last year.

``We are on track for another record year,'' Scott said in a statement. Wal-Mart now expects annual profit of $2.36 to $2.40 a share, up from a previously estimated $2.39 a share.

Federated Department Stores, the owner of Macy's and Bloomingdale's, raised its annual profit forecast yesterday. Terry Lundgren, chairman and chief executive of the Cincinnati-based company, said in a statement that he expects ``strength to continue into the fall season.''

Sales at electronics and appliance stores increased 0.2 percent after a 0.7 percent rise. Purchases at sporting goods, hobby, book and music outlets rose 1.3 percent while sales at food and beverage stores increased 0.1 percent. Sales at restaurants and drinking places rose 0.6 percent after rising 0.2 percent a month earlier.

Building Materials

Receipts at service stations fell 0.5 percent following a 0.1 percent rise in June. Excluding cars and gasoline, sales rose 0.3 percent for a second straight month.

Consumers got some relief from lower gas prices. The average retail price of gasoline fell to $1.95 a gallon in July after averaging more than $2 a gallon in June and May, according to Department of Energy figures. The average retail price of all grades of gasoline rose to a record $2.10 a gallon on May 24.

Sales at building material and garden supply stores declined 1.1 percent last month following a rise of 0.5 percent in June.

Purchases excluding autos and building materials, the category used in the Commerce Department's calculation of personal consumption in its report on gross domestic product, rose 0.4 percent after rising 0.2 percent in June.

Consumer spending is forecast to rise at a 3.2 percent annual rate in the third quarter, based on the median estimate of 48 economists polled by Bloomberg News. Spending rose 1 percent in the second quarter, the slowest pace since the 2001 recession.

Consumer Spending

Slower job gains in June and July, and energy prices that rebounded this month to a record high pose a risk to consumer spending in the second half, economists said. A Labor Department report Friday showed that employment grew by 32,000 in July, the smallest gain this year.

Crude oil futures on the New York Mercantile Exchange reached $45.10 a barrel today, the highest intra-day price since oil began trading in New York in 1983. That may hurt consumer spending if it translates into higher gasoline prices.

Economists surveyed by Bloomberg News from July 30 to Aug. 6 reduced their forecasts for third-quarter U.S. economic growth amid concern that record oil prices and shriveling job gains will curtail consumer spending. Growth this year was forecast at 4.3 percent, down from a projection of 4.5 percent in the survey a month earlier.

The U.S. economy grew at a 3 percent annual rate from April through June, the slowest in more than a year, as energy prices rose and consumer spending slowed.

``In recent months, output growth has moderated and the pace of improvement in labor market conditions has slowed,'' members of the Fed's rate-setting Open Market Committee said in a statement following their meeting Tuesday in Washington. ``This softness likely owes importantly to the substantial rise in energy prices. The economy nevertheless appears poised to resume a stronger pace of expansion going forward.''

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