Consumers are still spending —and keeping economy afloat

Associated Press

WASHINGTON — Consumers were choosy shoppers in July, keeping retail sales flat for the second month in a row. They spent less on cars and gasoline but more on sporting goods, health care products and clothing.

Economists said the Commerce Department’s report Tuesday showed that the economy, which has been stuck in low gear for a year, continues to struggle. But it also offered a sign of hope: Consumer spending, the main force keeping the country out of recession, hasn’t collapsed.

On Wall Street, investors remained listless. The Dow Jones industrial average was down 10 points to 10,406 in afternoon trading, while the Nasdaq composite index was down 7 points to 1,976.

"Consumers continue to buy, but clearly their broad shoulders are sagging a bit," said economist Joel Naroff, president of Naroff Economic Advisors. "But help is on the way. Tax rebates are just now starting to find their way into bank accounts, and the data for August should begin to show some improvement."

Other economists also were hopeful that the nearly $40 billion in tax-rebate checks which the government began mailing out in July, along with lower energy prices and the Federal Reserve’s aggressive credit-easing, would bolster consumer spending in the months ahead.

Fed chairman Alan Greenspan and his colleagues have slashed interest rates by 2.75 percentage points this year, and economists are predicting another cut when policymakers meet on Aug. 21.

Much of the lackluster performance in July came from a record drop in sales at gasoline stations, reflecting lower prices at the pump. The sales figures aren’t adjusted for changes in price. Slumping auto sales also was a factor in the flat reading.

Two main reasons June’s retail sales figure was revised from a 0.2 percent increase, as reported last month, to show no change in Tuesday’s report was because the decline in gasoline sales was much sharper than the government previously thought and the increase in auto sales was smaller.

Some economists said the weaker showing in retail sales for June could result in the economy’s 0.7 percent growth rate in the second quarter, as measured by the Gross Domestic Product, to be trimmed slightly. The government’s next estimate of second-quarter GDP, which is based on more accurate data, will be released Aug. 29.

However, excluding sales of autos, which tend to bounce around a lot from month to month, and of gasoline, retail sales in June and July rose by 0.1 percent and 0.6 percent, respectively, providing comfort to some economists.

In July, sales of cars and light trucks, such as sport utility vehicles, fell by 0.5 percent. Paul Taylor, chief economist for the National Automobile Dealers Association, believed part of the decline reflected consumers buying less expensive autos. In June, auto sales rose 0.5 percent, rather than by the previously reported 1.5 percent.

Sales at gasoline stations declined by a record 4.2 percent in July. In June, gasoline sales fell by 3.6 percent, vs. the 1.8 percent previously reported. After peaking in May, prices at the pump retreated in June and July.

At building and garden supply stores, sales edged down 0.1 percent in July for the second straight month.

The big drop in gasoline sales last month masked healthy gains posted by other retailers.

Sales for a broad category that includes sporting goods, hobby shops and music stores rose by 1.2 percent last month, after a 0.7 percent increase. Sales at clothing stores rose 0.9 percent, following a 0.5 percent decline.

At health and personal care stores, sales rose 1.7 percent, following a 0.4 percent increase. For bars and restaurants, sales rose 1 percent, on top of a 0.7 percent increase. Sales of electronics and appliances grew by 0.7 percent, after a 1.8 percent rise.