Originally created 09/13/03

Shoppers ease up a bit after July buying binge

WASHINGTON -- Shoppers kept cash registers busy enough to push retail sales up by 0.6 percent last month, but that was well beneath July's buying binge.

The rise in sales came after a brisk 1.3 percent advance in July and marked the fourth month in a row that sales went up, the Commerce Department reported Friday. August's sales performance, however, was weaker than the 1.5 percent gain that economists were forecasting.

Still, sales gains were fairly broad-based, with shoppers spending to buy cars, furniture, appliances and electronics. Excluding sales of automobiles, sales at other merchants rose by 0.7 percent in August - close to economists' predictions for a 0.8 percent rise.

"While the headline number on retail sales may sound disappointing, when you look directly underneath it, there was a lot more strength than meets the eye," said Stuart Hoffman, chief economist at PNC Financial Services Group.

On Wall Street, though, the smaller-than-expected rise in retail sales helped to pull stocks lower. The Dow Jones industrial average was down 64 points and the Nasdaq was off 17 points in morning trading.

Consumers, whose spending accounts for roughly two-thirds of all economic activity in the United States, have kept the economy going since the 2001 recession. And they will play an important role in determining how vigorous will be the anticipated rebound in the second half of this year.

By most signs, the second half has gotten off to a good start, economists said.

Some economists believe growth in the final six months of this year will clock in at a rate in the range of around 3.5 percent to just more than 4 percent. Others think it will be closer to a 5 percent pace. Either scenario would be better than the 2.3 percent growth rate seen in the first six months.

Against that backdrop, the Federal Reserve is likely to hold a key short-term interest rate at a 45-year low of 1 percent when it meets on Sept. 16, economists said. At the Fed's last meeting in August, policy-makers left that key rate unchanged and hinted that it could stay at the current level for some time.

In a second report, wholesales prices rose 0.4 percent in August, lifted by higher food and energy prices, following a tiny 0.1 percent increase in July, the Labor Department said.

The rise in wholesale prices in August was slightly stronger than the 0.3 percent advance economists were expecting. The report may ease Fed policy-makers' fears about deflation, an economically dangerous slide in prices.

Larger paychecks and other incentives coming from President Bush's third tax cut left people with extra money to spend and contributed to the brisk gain in retail sales in July, economists said. Because July's sales were so good, some economists believed that August's sales would have to show a bit of a slowdown.

Worries about jobs - the economy lost 93,000 positions in August - also probably played a role in less robust sales in August, economists said.

In August, sales of automobiles and parts rose by 0.5 percent, down from a 2.4 percent advance in July. At electronics and appliance stores, sales increased 1.4 percent last month, down from a 1.6 percent gain the previous month. Health and beauty stores saw sales rise by a modest 0.3 percent in August, compared with a 1.1 percent jump in July. Department stores sales went up 0.4 percent last month, compared with a 1.2 percent increase in July

Sales at sporting goods, books, music and hobby stores shot up by 1.5 percent in August, a turnaround from July's 0.6 percent decline. At bars and restaurants, sales rose 1.4 percent, up from a 0.5 percent rise in July.

At clothing stores, sales fell 1.4 percent, reversing July's 1.2 percent gain. Sales of building and garden supplies dipped 0.2 percent last month, compared with a 1.6 percent advance in July.


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