August retail sales best in 5 months

September 14, 2010 7:28:14 AM PDT
Retail sales rose in August by the largest amount in five months, adding to evidence that a late spring economic swoon was temporary and not the start of another recession.

Retail sales rose 0.4 percent last month, the Commerce Department said Tuesday. It was the second straight monthly increase and the biggest gain since March.

Excluding a decline in autos, retail sales increased 0.6 percent. That followed two relatively flat months and a sharp drop in May.

The strength in August sales came in a number of areas from department stores to clothing stores and sporting goods outlets. And it was the latest indication that the economy is regaining its footing after a dismal spring.

In a separate report, Best Buy said its fiscal second-quarter net income rose 60 percent. Shoppers bought cell phones, appliances and tablet computers. The results exceeded analysts' expectations.

Retail sales rose a revised 0.3 percent in July after posting back-to-back declines in May and June. Those decreases had raised concerns that the economic recovery was losing strength and that a second recession was possible. Consumer spending accounts for 70 percent of total economic activity.

Even with the sales rebound in July and August, economists expect 2 percent growth in the second half of this year. That would be better than the 1.6 percent growth rate in the April-to-June quarter. But it would be well below the January-to-March quarter's 3.7 percent growth rate and not enough to lower the 9.6 percent unemployment rate.

Economists said it was not surprising that consumer spending is not growing at a faster pace given all the problems facing households.

"Jobs are not readily available, wages are stagnant and income growth is mediocre," said Joel Naroff, chief economist at Naroff Economic Advisors.

One area of weakness last month was auto sales, which fell 0.7 percent. That confirms earlier reports that August was the auto industry's worst month for sales since 1983. General Motors, Toyota, Honda and Ford all reported declines last month compared to July and also compared to August 2009.

But other areas were strong. Department stores and general merchandise stores both posted 0.4 percent gains. The latter category includes big chains such as Wal-Mart and Best Buy.

Last week, major chain stores reported that this year's back-to-school season was better than first anticipated. Still, retailers reported that shoppers were spending mainly when they found discounts and sales were by no means sizzling.

Analysts said they expect stores will need to keep discounting to get shoppers to spend this fall and for the holiday.

Sales were up 1.9 percent at gasoline stations, an increase that in part reflected higher pump prices. Excluding gasoline stations, retail sales would have risen 0.3 percent in August after a 0.1 percent July increase.


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