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Retail Sales: Larger-Than-Expected Fall

WASHINGTON (Reuters) - U.S. retail sales slid a larger-than-expected 1.1 percent in June, the Commerce Department said on Wednesday in a report showing the stalwart American consumer struggling to deal with high energy prices.

In a separate report that may ease inflation concerns, the Labor Department said prices of goods imported into the United States unexpectedly dipped 0.2 percent in June. Export prices fell by 0.6 percent, their first decline in nearly a year.

The June decline in retail sales was the largest since a matching 1.1 percent drop in February 2003. Stripping out a slide in auto sales, retail purchases fell a smaller 0.2 percent.

Both measures were weaker than anticipated by Wall Street economists who had projected a smaller 0.6 percent drop overall and a 0.2 percent rise in sales aside from autos.

Taking some of the sting out of the report, however, were upward revisions to May sales data. The Commerce Department said retail sales in May were up 1.4 percent overall and 0.9 percent excluding the auto sector. May sales had previously been reported as up 1.2 percent overall and up 0.7 percent ex-autos.

Treasury bond prices initially rallied on the unexpectedly soft June figures but then fell back as traders eyed the May revisions. In foreign exchange markets, the dollar fell against the euro and the yen.

"The retail sales data are a little weaker than expected and they were expected to be weak. The bigger surprise was that even excluding auto transactions, the numbers were weak," said Patrick Fearon, economist with A.G. Edwards & Sons in St. Louis.

"The fact that gasoline prices have been up, coupled with the fact that the bulk of tax refunds may have already been spent, may have contributed to this. But we still feel fairly confident in the health of the consumer sector because payroll growth is still up," he added.

As gas prices rise, consumers have less money to spend on other items.


In June, auto sales plunged 4.3 percent -- their worst showing since February 2003's 4.6 percent decline -- accounting for a large portion of the broad slump in sales.

But other categories also showed softness. Department store sales fell 0.8 percent, while sales at clothing stores dropped 0.5 percent. Purchases at gas stations reversed part of a big jump seen in May, falling 0.9 percent. Restaurants and bars saw business decline by 0.8 percent.

The broad economy has been showing signs of slowing from its rapid pace of growth in the latter half of 2003 and early this year. The Federal Reserve still felt confident enough that the recovery would keep its footing to raise interest rates by a quarter percentage point in June.
Big U.S. retailers last week reported weak June sales, a trend they blamed on energy costs and the effects of cooler weather, which dampened purchases of summertime items.

Minneapolis-based discount retailer Target Corp. also said it expected July sales at its namesake stores to rise by a scant 1 percent to 2 percent. Wal-Mart, the world's largest retailer, said it was expecting a 2 percent to 4 percent gain in sales, but cautioned that high gasoline prices continue to drag on consumer spending.

In another economic report, the Mortgage Bankers Association said its weekly index of mortgage borrowing fell by 6.3 percent in the week ending July 9 as demand eased for floating-rate home loans and a holiday-shortened week.





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