July 15, 2013 2:49 pm

US retail sales fall short of forecasts

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US retail sales fell short of expectations in June as demand at restaurants and building materials shops slowed, pointing to a weaker US economy in the second quarter.

The 0.4 per cent uptick last month followed a downwardly revised 0.5 per cent increase in May, commerce department data showed on Monday. Economists surveyed by Bloomberg had called for a 0.8 per cent gain.

The numbers indicate that consumer spending, which accounts for the largest chunk of the US economy, might take time to accelerate. Rises in tax rates since the start of the year are still biting and many Americans are keeping a tight handle on their outgoings.

“This is a big miss,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Overall, the numbers are consistent with the idea that discretionary spending is still constrained by weak cash flow, and we expect only a 1.6 per cent rise in real second-quarter consumption.”

Sales at restaurants and bars declined 1.2 per cent in June, the most since February 2008, following a 0.6 per cent dip in May. Those at building materials outlets dropped 2.2 per cent in June, the most since May 2012, but this followed gains totalling 4.3 per cent in the previous two months. Department store sales fell 1 per cent.

Even so, rising household wealth as a result of an improved labour market picture and a jump in home values and stock prices is still sustaining demand for large purchases such as cars. Sales at car dealerships gained 1.8 per cent – the biggest since November – after advancing 1.4 per cent the prior month.

Purchases rose 2.4 per cent at furniture and home furnishing chains, the most since May 2012. Sales at petrol pumps increased 0.7 per cent in June, following a 0.4 per cent gain the month before.

But so-called core sales, which strip out cars, petrol and building materials and correspond most closely with the consumer spending component of gross domestic product, edged up 0.1 per cent after rising 0.2 per cent in May. This was the weakest since January.

Signs of a pullback in consumer demand come as the Federal Reserve is considering a slowdown of its bond-buying programme to spur growth.

“The disappointing rise in retail sales values in June increases the chances that gross domestic product grew at an annualised rate of less than 1 per cent in the second quarter,” said Paul Dales, senior US economist at Capital Economics. “Even more worrying is that sales growth appears to be losing momentum heading for the third quarter.”

A marginal rise in business inventories data for May added to fears of a second-quarter slowdown. Another release from the commerce department showed inventories ticked 0.1 per cent higher after a downwardly revised 0.2 per cent gain in April. Economists had expected no change from April’s initially reported 0.3 per cent gain.

Retail inventories, excluding autos – which is used to calculate economic growth – increased 0.3 per cent after rising by the same margin in April. Businesses are holding back on restocking against the backdrop of lacklustre domestic demand.

Separate data today showed manufacturers in the New York area felt more upbeat in July, a rebound from the flat spot hit in the early spring. The measures for new orders, shipments and employment drove gains.

The Federal Reserve Bank of New York’s general economic conditions measure, also known as the Empire State index, climbed to 9.46 this month, from 7.8 in June.

Readings of greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. Economists surveyed by Bloomberg had expected a level of 5.

The survey is the earliest indicator of the monthly performance of the US manufacturing sector, which accounts for about 12 per cent of the economy.

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