Retail Sales Drop as Auto Sales Plummet

MBA (8/14/2008 ) Velz, Orawin
Retail sales decreased 0.1 percent in July following a 0.3 percent gain in June. This was the first decline since February. A 2.4 percent drop in auto sales was responsible for the decline in overall sales.
In terms of units, sales of cars and light trucks for the month dropped 8.3 percent to 12.5 million units (annualized pace), the weakest pace since 1993. Tighter lending standards have contributed to slumping auto sales. Excluding autos, retail sales increased by 0.4 percent, slowing from a 0.9 percent increase in June.

Sales increases were broad-based, including housing-related sales, such as those at building supply, appliance and furniture stores. Outside of sales at auto dealers, only sales at restaurants and sporting goods and hobby stores posted declines among major sales categories. Retail sales weakened in July as the boost from the tax rebates began to dissipate. Nearly 90 percent of the stimulus tax payments were already distributed by the end of July, with a small amount from revised returns projected for next year, according to the Treasury Department.

Retail sales account for about 40 percent of total personal consumption expenditures with spending on services accounting for the rest. Declining retail sales for July suggested that PCE growth may slow in the current quarter.

A separate report showed that higher energy and other commodity import prices continued to pose a threat to domestic inflation. Import prices rose 1.7 percent in July, the seventh consecutive increase, moderating from a 2.9 percent surge in June. On a year-over-year basis, import prices were up 21.7 percent, the largest on the record.

While energy prices led the increase, non-energy prices also posted a strong gain. Imported petroleum prices increased 4.0 percent, and imported natural gas prices rose 5.8 percent. Excluding fuels, import prices increased 0.7 percent for the second consecutive month and were up 6.9 percent on a year-ago basis, also a record high. Import prices would likely moderate in the coming months as crude oil prices have tumbled since mid-July and the dollar has recently strengthened.