Sales at U.S. retailers unexpectedly fell in July, raising the risk that consumers will keep cutting back as job losses mount and temper a recovery from the worst recession since the 1930s.
Purchases decreased 0.1 percent, the first drop in three months, as shrinking demand at department stores such as Macy’s Inc. and Wal-Mart Stores Inc. overshadowed a boost from the cash-for-clunkers automobile incentive program, Commerce Department figures showed today in Washington.
A separate government report today showed more Americans than forecast filed claims for unemployment insurance last week, underscoring the threat to spending from the continued deterioration in the job market. Treasury securities jumped and the dollar fell after the reports, and some economists lowered estimates for growth this quarter.
“Until we start seeing job growth, consumers are still going to be very cautious,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto, which accurately forecast the drop in purchases excluding automobiles. “It’s premature to talk about the sustainability of a recovery,” he said, until there’s “follow-through on the demand side.”
The gain in Treasuries sent the yield on the benchmark 10- year note down to 3.66 percent at 11:40 a.m. in New York from 3.72 percent late yesterday. The dollar dropped against the Japanese yen to 95.47 yen from 96.06 on Aug. 12. Stocks were little changed.
The Labor Department said today that 558,000 people filed first-time claims for jobless benefits last week, up from 554,000 the week before.
Retail sales were projected to rise 0.8 percent, according to the median estimate of 76 economists in a Bloomberg News survey. Forecasts ranged from a decline of 0.9 percent to a gain of 2 percent. Commerce revised June sales up to show a gain of 0.8 percent from the 0.6 percent increase previously reported.
Excluding automobiles, sales fell 0.6 percent, also worse than anticipated and the biggest drop since March. They were forecast to increase 0.1 percent, according to the survey.
Americans cut back on furniture, electronics, building materials, groceries and sporting goods in July, according to the report. The drop in sales at department stores, at 1.6 percent, was the biggest this year.
‘In the Tank’
“It’s hard to find anything encouraging in this report,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “For the most part, discretionary spending is in the tank.”
Walmart, the world’s largest retailer, today reported profit that exceeded some analysts’ estimates after managing inventory to lower costs. Comparable-store sales trailed the company’s forecast.
The drop in sales was attributable to consumers being “more selective” in buying discretionary items and to larger declines in grocery prices than anticipated, Eduardo Castro- Wright, Walmart’s U.S. stores chief, said on a recorded call.
Macy’s, the second-biggest U.S. department store chain, said yesterday it cut inventories 7.5 percent in the second quarter from a year ago as sales dropped.
Other reports today showed companies trimmed inventories in June for a 10th consecutive month, and prices of imported goods dropped in July for the first time in six months as the cost of commodities such as petroleum and chemicals decreased.
Cash for Clunkers
Figures from the retail sales report showed the government’s cash-for-clunkers plan did boost auto purchases, confirming industry data released earlier this month. Sales at dealerships and parts stores climbed 2.4 percent last month, the biggest gain since January.
The government is offering credits of up to $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles. President Barack Obama last week signed into law an emergency measure giving an additional $2 billion to the program after the original $1 billion ran out three months earlier than projected. The infusion of funds was meant to extend the program through August.
Excluding autos, gasoline and building materials — the retail group the government uses to calculate gross domestic product figures for consumer spending — sales dropped 0.2 percent after no change in June. The government uses data from other sources to calculate the contribution from the three categories excluded.
After the report, economists at Morgan Stanley in New York projected the economy will expand at a 3.7 percent annual pace this quarter, down from a prior estimate of 4.2 percent.
The economy has lost about 6.7 million jobs since the recession started in December 2007, the worst of any downturn since World War II. GDP contracted at a 1 percent annual rate in the second quarter, the fourth consecutive drop.
Federal Reserve policy makers yesterday said they will hold the benchmark interest rate “exceptionally low” for an “extended period” to help sustain a recovery. They also added “sluggish income growth” to the list of reasons why household spending is likely to be slow to rebound. Headwinds previously mentioned included job losses, tight credit and falling home values.