Retail sales in summer surprise

THE BALTIMORE SUN

Armed with renewed optimism, and some tax rebate checks, American consumers splurged last month on electronics, appliances, clothing and cars, boosting retail sales to their biggest gain in four months.

Apparently not cowed by employment anxieties, shoppers spent $317.2 billion in stores, restaurants and auto dealerships, a 1.4 percent jump over June. It was the biggest increase since sales catapulted 2.3 percent in March, the U.S. Department of Commerce reported yesterday. Excluding automobiles and parts, retailers' sales rose 0.8 percent. Wal-Mart Stores Inc., the world's largest retailer, also reported increased earnings yesterday.

The stock market didn't leap at retailing's good news, but the results were being viewed as another potential sign of economic turnaround for the nation.

Economists had expected total retail sales to rise by about 1 percent. The Commerce Department yesterday also revised June's increase to 0.9 percent from 0.5 percent.

"The rise for the month of July was well above expectations, and that, with June's upward revisions, essentially gives a pretty strong forward momentum to sales and consumers spending," said Kathleen Stephansen, director of global economics at Credit Suisse First Boston. "The pace of growth has accelerated in sales, and that's a significant development."

Spending on home-related goods came in especially strong, with the Commerce Department reporting sales up 8.7 percent for furniture and home furnishings stores and 8.2 percent for dealers of building materials and garden equipment.

"The spending is being driven by optimism about the future - and a healthy dose of fiscal stimuli," said Joseph Abate, a senior economist for Lehman Brothers in New York.

Fueling the spending are tax cuts, in the form of rebate checks and tax rate reductions, lower prices on consumer goods, relatively low interest rates and an increase in the stock market since the start of the war with Iraq. Recent tax cuts include a federal child credit tax cut, of $400 per child, distributed late last month.

"Clearly there's reason to be optimistic," Abate said. "It's not surprising [consumers] are in a better mood to spend money. Pretty much everyone is spending on whatever they had their hearts set on."

Sales rose across the board by about 1 percent, in general merchandise, apparel, building materials, furniture and electronics.

Retail sales have strengthened in spite of weak wage and salary growth, she said, with consumers relying on home equity when they sell or refinance to provide additional buying power.

Several major retailers benefited from the increased consuming. Wal-Mart Stores Inc. said yesterday that its second- quarter earnings rose nearly 15 percent, to $2.3 billion, or 52 cents per share, on sales of $62.6 billion, an 11.3 percent increase. AnnTaylor Stores Corp. also reported better-than-expected quarterly profit. Federated Department Stores, owner of Macys and Bloomingdales, meanwhile, said its second-quarter profit fell 57 percent.

But the overall boost in sales was heartening , especially coming in July, traditionally a slow month. Retailers typically spend July clearing out summer merchandise to make way for fall apparel and goods, said Rosalind Wells, chief economist for the National Retail Federation.

"Retailers saw a lot of clearance merchandise moved out of the stores, which is positive for the future," Wells said. "It clears the shelves and puts retailers in a better position. We're seeing a real turnaround in retail sales, and I expect the second half will be much better than the first half."

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