Retail sales rise 0.4 percent in August for best gain in 5 months; auto sales drop

August retail sales up 0.4 pct., best in 5 months

WASHINGTON — Retail sales rose in August by the largest amount in five months, adding to evidence that a late spring economic swoon was temporary and not the start of another recession.

Retail sales increased 0.4 percent last month, the Commerce Department said Tuesday. It was the second straight monthly increase and the biggest gain since March.

Excluding a decline in autos, retail sales increased 0.6 percent. That followed two relatively flat months and a sharp drop in May.

A separate Commerce report said inventories held by businesses jumped in July by the largest amount in two years while sales rebounded after two months of declines. The rebound in sales was an encouraging sign that consumer demand is rising after two weak months. Businesses build up their stocks when they anticipate stronger retail demand in the months ahead.

The strength in August retail sales came in a number of areas from department stores to clothing stores and sporting goods outlets. However, bigger-ticket items such as furniture and electronics fell last month.

Best Buy said Tuesday that its fiscal second-quarter net income rose 60 percent. The retailer’s standalone mobile stores helped to boost profits. Shoppers bought cell phones, appliances and tablet computers. Still, sales of televisions, video game consoles, video games, music and movies all fell.

Retail sales rose a revised 0.3 percent in July after posting back-to-back declines in May and June. Those decreases had raised concerns that the economic recovery was losing strength and that a second recession was possible. Consumer spending accounts for 70 percent of total economic activity.

Even with the sales rebound in July and August, economists expect 2 percent growth in the second half of this year. That would be better than the 1.6 percent growth rate in the April-to-June quarter. But it would be well below the January-to-March quarter’s 3.7 percent growth rate and not enough to lower the 9.6 percent unemployment rate.

Analysts cautioned that the August retail sales figures may not indicate a trend. Discounts on back-to-school merchandise helped drive gains of lower-priced items, such as clothing, they note. At the same time, the weak housing market has dampened demand for more expensive items. Furniture sales were down 0.5 percent, the fourth decline in the past five months.

Part of the boost in August reflected tax-free shopping days offered as an incentive by several states to spur sales.

“The incentive-driven gain in retail sales in August is unlikely to be repeated in September,” said Sal Guatieri, an economist at BMO Capital Markets. “Real consumer spending will likely continue to grow at a subdued rate … until job growth improves.”

Economists said it was not surprising that consumer spending is not growing at a faster pace given all the problems facing households.

“Jobs are not readily available, wages are stagnant and income growth is mediocre,” said Joel Naroff, chief economist at Naroff Economic Advisors.

One area of weakness last month was auto sales, which fell 0.7 percent. That confirms earlier reports that August was the auto industry’s worst month for sales since 1983. General Motors, Toyota, Honda and Ford all reported declines last month compared to July and also compared to August 2009.

But other areas were strong. Department stores and general merchandise stores both posted 0.4 percent gains. The latter category includes big chains such as Wal-Mart and Best Buy.

Last week, major chain stores reported that this year’s back-to-school season was better than first anticipated. Still, retailers reported that shoppers were spending mainly when they found discounts and sales were by no means sizzling.

Analysts said they expect stores will need to keep discounting to get shoppers to spend this fall and for the holiday.

Sales were up 1.9 percent at gasoline stations, an increase that in part reflected higher pump prices. Excluding gasoline stations, retail sales would have risen 0.3 percent in August after a 0.1 percent July increase.