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NewsJuly 15, 2004

WASHINGTON -- Lethargic shoppers depressed sales at America's retailers in June by the largest percentage in 16 months. Looking ahead, though, buyers are expected to show more energy. The 1.1 percent decline in sales, reported Wednesday by the Commerce Department, followed a shopping splurge in May when merchants' sales rose 1.4 percent, better than previously estimated...

By Jeannine Aversa, The Associated Press

WASHINGTON -- Lethargic shoppers depressed sales at America's retailers in June by the largest percentage in 16 months. Looking ahead, though, buyers are expected to show more energy.

The 1.1 percent decline in sales, reported Wednesday by the Commerce Department, followed a shopping splurge in May when merchants' sales rose 1.4 percent, better than previously estimated.

The retreat in buying was blamed on bad weather and the lingering effects of high energy prices, economists said. Some analysts also said they believed June's slowdown in the growth of the nation's payrolls played a role. The economy added a net 112,000 jobs last month, less than half the number economists had forecast.

The report reinforced the notion that consumer spending slowed from April through June, although overall growth for these months was still expected to be decent, economists said.

Analysts did not view the June results as a sign consumers will become so tightfisted as to threaten the economic recovery. Instead, they were hopeful shoppers in the current quarter will return to buying, especially if the job climate improves.

"Does this huge drop-off in demand mean consumers have closed up shop? Hardly," said Joel Naroff, president of Naroff Economic Advisors. "With the labor market firming and income growing, they should be able to sustain solid consumption the rest of the year."

The 1.1 percent drop in retail sales was the largest since February 2003, when sales fell by the same amount. June's decline was sharper than the 0.7 percent drop that some economists were predicting.

On Wall Street, stocks slid on the disappointing news. The Dow Jones industrials lost 38.79 points to close at 10,208.80.

In the retail report, the falloff was led by a 4.3 percent decrease in sales at automobile dealerships, compared with May's 3.2 percent gain.

Paul Taylor, chief economist at the National Automobile Dealers Association, predicted the return of incentives should bring a rebound in car sales in July.

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Excluding auto sales, all other sales dipped by 0.2 percent in June -- matching economists' expectations -- compared with a 0.9 percent rise in May.

Sales at clothing stores, department stores, food and beverage stores, gasoline stations and bars and restaurants all showed declines in June. Showing sales gains were furniture, electronics and appliances, building and garden supplies, health and beauty products, and sporting goods, books and music.

"Retailers will look to the back-to-school season to offset June's sluggish sales," said Rosalind Wells, chief economist at the National Retail Federation.

Shoppers' spending accounts for roughly two-thirds of all economic activity.

Economists are hopeful that a slowdown in consumer spending will be more than offset by stronger investment by business as well as better activity from other parts of the economy.

Stuart Hoffman, chief economist at PNC Financial Services Group, estimates consumer spending grew at an annual rate of around 2.5 percent in the April-June quarter, down from a 3.8 percent growth rate in the previous quarter.

Even so, Hoffman predicts economic growth, as measured by the gross domestic product, increased at a rate of around 4 percent in the second quarter, close to the 3.9 percent pace seen in the first three months of this year. The government's first estimate of second-quarter GDP will be released July 30.

In the current July-to-September quarter, consumer spending should come in at about a 3 percent pace and GDP about a 4 percent growth rate, said Mark Zandi, chief economist at Economy.com.

"Consumers will be sturdy spenders, but I think the strongest gains in consumer spending are behind us," he said.

Federal Reserve Chairman Alan Greenspan and his colleagues believed the economy was in sufficient shape to begin their first credit-tightening campaign in four years. The Fed on June 30 raised a key short-term rate to 1.25 percent, from a 46-year low of 1 percent, in an effort to prevent the expanding economy from igniting inflation.

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