Sales at U.S. retailers surged in August by the most in three years, showing unexpected strength in consumer demand that extended beyond auto purchases spurred by the government’s “cash-for-clunkers” program.
The 2.7 percent increase exceeded economists’ forecasts and followed a 0.2 percent drop in July, Commerce Department figures showed today in Washington. Purchases excluding automobiles climbed 1.1 percent, topping the highest forecast.
Stocks climbed as the report eased investor concerns that consumers will make a limited contribution to the recovery, leaving the economy dependent on government spending a year after the collapse of Lehman Brothers Holdings Inc. Morgan Stanley was among banks and investment firms raising forecasts for third-quarter economic growth after the report.
“The most remarkable thing is it wasn’t all cash-for- clunkers,” said Robert Stein, a senior economist at First Trust Advisors LP in Lisle, Illinois, who forecast a gain of 2.9 percent. “The consumer is in recovery and the U.S. economy is in recovery.”
Stocks advanced for the seventh time in eight days. The Standard & Poor’s 500 index rose 0.3 percent to close at 1,052.63, its highest level in almost a year. The yield on the 10-year Treasury note rose two basis points, or 0.02 percentage point, to 3.44 percent at 4:45 p.m. in New York. It climbed as high as 3.49 percent immediately after the report.
Retail sales were projected to rise 1.9 percent after an initially reported 0.1 percent decline in July, according to the median estimate of 73 economists in a Bloomberg News survey. Forecasts ranged from gains of 0.8 percent to 3.8 percent. Last month’s gain was the biggest since January 2006.
Year-Over-Year
Purchases were down 5.3 percent from August 2008, the smallest year-over-year drop since October.
Separate reports today signaled manufacturers will help the economy pull out of the worst slump since the Great Depression as they ramp up production after a record inventory drawdown in the first half of 2009.
Business inventories declined 1 percent in July, exceeding economists’ forecasts, to $1.33 trillion, the lowest level since March 2006, a Commerce Department report showed today. Sales climbed 0.1 percent after a 1.1 percent gain in June.
Manufacturing in the New York region grew in September at the fastest pace in almost two years, according to the Federal Reserve Bank of New York. The New York Fed’s general economic index increased to 18.9 from 12.1 in August, the bank said today.
Median Forecast
Excluding automobiles, the increase in sales was the biggest in six months. Purchases minus cars were forecast to increase 0.4 percent, according to the survey median.
The auto plan, which ended Aug. 24, offered buyers discounts of as much as $4,500 to trade in older cars and trucks. The program prompted almost 700,000 purchases, the Transportation Department said.
The economy has lost about 6.9 million jobs since the recession started in December 2007, the worst of any downturn since World War II. Gross domestic product contracted at a 1 percent annual rate in the second quarter, the fourth consecutive drop.
President Barack Obama yesterday said job losses are “bottoming out” and pointed to gains in exports and manufacturing as signs the U.S. economy is expanding again.
Obama
“I don’t think we’re out of the woods yet,” Obama said in an interview with Bloomberg News. “What we have to be careful about is taking the crutches away from the patient too early.”
Fed Chairman Ben S. Bernanke added to the note of caution as he answered questions today following a speech at the Brookings Institution in Washington.
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” he said.
Economists also warned that stagnant wages and a loss of wealth resulting from the drop in home prices will probably restrain consumer spending in the months to come.
“All the reasons for concern about consumer spending are still out there,” said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm. “If there is any sign of resilience in September, that will be very encouraging.”
Sales at automobile dealerships and parts stores jumped 11 percent, today’s report showed, the most since October 2001 when carmakers such as General Motors Corp. offered zero- percent financing to spur sales following the terrorist attacks the previous month.
Broad-Based
Service stations, clothing, sporting goods and department stores all recorded gains of more than 2 percent last month, today’s report showed. Only furniture and building-material stores showed losses.
Excluding autos, gasoline and building materials — the retail group the government uses to calculate gross domestic product figures for consumer spending — sales increased 0.7 percent, after a 0.3 percent decrease. The government uses data from other sources to calculate the contribution from the three categories excluded.
“This is a sign that consumers are beginning to feel a little more comfortable about the economy,” Rebecca Blank, Commerce undersecretary for economic affairs, said in an interview. “I wouldn’t want to say that we are solidly there yet. We need several more months of these types of numbers.”
Spending Outlook
Consumer spending, which accounts for 70 percent of the economy, is projected to grow at a 1.7 percent pace from July through September and then slow to 1 percent in the last three months of the year, according to the median estimate of economists surveyed this month by Bloomberg News.
Purchases rose at an average 3.5 percent pace in the decade before the current recession began in December 2007.
Economists at Morgan Stanley raised their estimate for third-quarter growth to 3.9 percent from 3.7 percent after the sales report.
In the Fed’s Beige Book business survey, published two weeks before officials meet to set monetary policy, the central bank reported “flat” retail sales in July and August and cited some auto-industry contacts as saying the cash-for- clunkers effect may be temporary. The Fed released the survey on Sept. 9.
“Despite some encouraging signs in the global economy, it is difficult to predict the timing and pace of any economic recovery,” Alan Graf, chief financial officer for FedEx Corp., said last week in a statement. FedEx, the second-largest U.S. package-shipping company, said first-quarter profit topped its forecast.
FedEx and larger rival United Parcel Service Inc. are considered proxies for the U.S. economy because they handle almost 80 percent of domestic package shipments.
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