Retail sales up corporate profits surge; 'The economy's in great shape'

THE BALTIMORE SUN

WASHINGTON -- Sales at U.S. retailers rose for the first time in four months in June and second-quarter U.S. corporate profits are surging -- suggesting that the economy is poised to rebound from its slow second quarter.

"The economy's in great shape," said Patrick Flaherty, an economist at Fleet Financial Group in Hartford, Connecticut. "The consumer slowdown we saw in the second quarter isn't a sign the economy's in trouble. The low inflation environment allows companies to keep costs under control. Inflation has been just excellent."

Last month's 0.5 percent increase in retail sales followed declines of 0.3 percent in March, 1.1 percent in April and 0.3 percent in May, Commerce Department figures showed yesterday.

That suggests the U.S. economy -- now in its seventh year of expansion -- was rebounding at a subdued pace at the end of the second quarter. Growth in the quarter likely was 2 percent or less, about one-third the first quarter's 5.9 percent annual growth rate, analysts said.

Even so, several major U.S. corporations reported stronger-than-expected profits yesterday for the quarter ended June 30. Citicorp, Merrill Lynch & Co., Texas Instruments Inc., Travelers Group Inc. and Whirlpool Corp. all beat analysts' earnings forecasts.

"The slowdown in the second quarter was in consumer spending, but if you look at exports and business spending on things like capital goods, it's still robust," said Richard Litchfield, who manages about $2.1 billion in bonds for Allmerica Asset Management in Worcester, Mass.. "Even with a growth rate of about 2 percent, it's not terribly difficult to increase earnings," Litchfield said.

The Commerce Department report showed that sales excluding autos and other vehicles rose 0.3 percent in June after showing no change in May, originally reported as a 0.1 percent drop.

The April and May retail sales declines were larger than earlier estimated by the government. The Commerce Department originally estimated that May retail sales declined 0.1 percent and the April decline as being 0.9 percent. "The numbers do not indicate a lot of strength in consumer spending," said Marilyn Schaja, an economist at Donaldson, Lufkin and Jenrette in New York.

Some analysts said June's sales gain could be a sign the economy is gaining steam. "Job growth is healthy, wage growth is gradually accelerating, the stock market is close to record highs," said Kenneth Mayland, chief economist at Key Corp. in Cleveland.

If sales surge in coming months, that could give Federal Reserve policymakers a reason to raise the overnight bank lending rate again to keep the economy from overheating. Since consumer spending makes up two-thirds of the U.S. economy, shoppers' spending patterns will dictate the growth rate -- and what the Fed does. Central bankers left the overnight bank rate at 5.50 percent earlier this month. They meet again on Aug. 19.

The Commerce Department's monthly report showed June sales increased to $210.299 billion for the month, adjusted for seasonal variations. That's up from May's sales level of $209.311 billion and barely higher than January's $210.233 billion.

The report showed orders for big-ticket, durable goods, including autos and appliances, rose 0.5 percent in June. Orders for non-durable goods, ranging from groceries to clothing, increased 0.4 percent during the month.

In nondurable goods industries, restaurant sales rose 1.1 percent, while drugstore sales rose 0.3 percent.

Pub Date: 7/16/97

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