The Commerce Department said Friday spending at retail businesses rose 0.2 percent last month, the smallest gain in four months. | AP Photo
WASHINGTON — U.S. retail sales edged up in July despite a drop in auto sales. A category of purchases that excludes the most volatile areas rose by the most in seven months, a sign that consumer spending could boost economic growth in the coming months.
The Commerce Department said Tuesday that retail sales increased 0.2 percent in July from June. Sales had risen 0.6 percent in June from May on a surge in auto sales.
“Core” retail sales, which exclude the volatile auto, gas and building supply categories, rose 0.5 percent in July. It was the biggest such gain since a similar increase in December.
Retail sales are closely watched because they’re the government’s first report each month on consumer spending, which accounts for 70 percent of U.S. economic activity.
Tuesday’s report is “consistent with a decent acceleration” in consumer spending in the current July-September quarter, said Paul Dales, senior U.S. economist at Capital Economics.
Dales suggested that consumer spending, which rose at an annual rate of 1.8 percent in the April-June quarter, could grow at a 2.5 percent annual rate or better in the current July-September quarter.
“Households may be spending a bit more freely in response to the recent gains in employment, equity prices, house prices and the modest loosening in credit,” Dales said.
Sales at department stores rose 0.6 percent in July, rebounding from a 1.2 percent drop in June. A broader category of general merchandise, which covers big retailers such as Wal-Mart and Target, rose 0.4 percent after no change in June.
Purchases at gasoline stations rose 0.9 percent, an increase that partly reflected higher pump prices. Excluding gasoline, retail sales would have risen 0.1 percent in July.
Sales at clothing stores rose 0.9 percent, and they increased 0.6 percent at grocery stores and restaurants. At furniture stores, sales fell 1.4 percent. Purchases at building supply and appliance stores also weakened.
The U.S. economy grew at lackluster annual rates of 1.1 percent in the January-March quarter and 1.7 percent in the April-June quarter. But many economists think growth will rebound in the second half of the year to an annual rate of roughly 2.5 percent.
Optimism stems, in part, from the notion that consumer spending will strengthen for the remainder of the year as the effects of this year’s tax increases and spending cuts start to fade. Economists also think consistently improving home sales and higher stock prices will make people feel more comfortable spending money in stores.
Steady job growth will help, too. In July, the unemployment rate fell to a 4½-year low of 7.4 percent, from 7.6 percent in June, though employers added only a modest 162,000 jobs.
One weakness in July was auto sales, which fell 1 percent after surging 2.9 percent in June. July’s decline contrasts with reports from automakers. General Motors, Ford, Chrysler, Toyota and Nissan have all reported double-digit sales gains from a year ago. But the government’s figures are seasonally adjusted and compare sales with the previous month, not with year-ago levels.
Some big retail chains reported that shoppers seemed to be holding off on back-to-school shopping in July. Revenue at stores opened at least a year rose 3.5 percent compared with a year ago, according to a tally of 11 retailers by the International Council of Shopping Centers.
Many stores were already offering discounts to induce shoppers to spend on fall clothing, which began showing up on store shelves in mid-July. But retail analysts say even more deals could be coming in August as stores try to boost sales during the back-to-school season, which runs from mid-July through mid-September.
Americans are still being held back by scant pay increases at a time of higher taxes and rising gas prices. In January, a Social Security tax increase kicked in. It means that someone who earns $50,000 has about $1,000 less to spend this year. A household with two high-paid workers has up to $4,500 less.