US retail sales rose in June as consumers bought more autos and electronics, a sign Americans are spending just enough to keep the 10-year economic expansion going.
"We believe that the soft economy has bottomed," said Lynn Chipperfield, senior vice president and chief administrative officer at Furniture Brands International Inc, the St. Louis-based company that makes the Broyhill, Lane and Thomasville lines.
Retail sales rose 0.2 percent last month after increasing 0.4 percent in May and 1.4 percent in April, the Commerce Department said. Sales excluding autos fell 0.2 percent, dragged down by a price-led drop in gasoline purchases, after a 0.4 percent rise.
Separate reports showing a rise in consumer optimism and the biggest decline in prices paid to producers in more than two years suggest discounting on cars, computers and other goods may keep boosting spending. Consumers buy two-thirds of all goods and services sold in the nation.
The University of Michigan's consumer sentiment index rose to 93.7 this month, the second-highest reading this year, from 92.6 in June.
"Expectations are the key to future spending, so this is another brick in the rising wall of evidence suggesting the economy is turning up," said Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York.
What's more, spending may get a lift once tax-rebate checks are mailed out and the Federal Reserve's six reductions this year in the overnight bank lending rate take hold. Tax rebates of as much as US$600 per household will be mailed starting the week of July 23. Energy prices are starting to fall as well.
Prices paid to factories, farmers and other producers dropped more in June than at any time since February 1999, led by record declines in residential electricity and natural gas costs, the Labor Department said.
The producer price index decreased 0.4 percent after rising 0.1 percent in May. Excluding food and energy, prices rose 0.1 percent after rising 0.2 percent in May. The increase in the core PPI was the smallest in three months.
US government securities rose as the report showed inflation wasn't a threat to the economy's recovery or Fed interest-rate policy. The Treasury's 10-year note rose 1/8 point, pushing down its yield 2 basis points to 5.22 percent. Stocks gained for a third day.
Wal-Mart Stores Inc reported on Thursday that sales at stores open at least a year surged 6.9 percent last month. And consumer appetites for inexpensive goods and services help explain why the economy has avoided recession, even as growth slowed to the weakest pace in a decade.
"America has become a land of bargain hunters," said Kurt Barnard, president of Barnard's Retail Trend Report.
Friday's retail report means sales rose at a 6.1 percent annual rate in the second quarter, compared with a 5.2 percent pace in the first quarter, according to calculations by Bloomberg News.
That may boost calculations of gross domestic product for the second quarter. Analysts project the economy cooled to a 0.6 percent annual growth rate in the second quarter, the slowest since the first quarter of 1993. The economy grew at a 1.4 percent pace from October through March, the slowest six-month period since 1991.
The economic expansion began it's record-setting 11th year in April, even as growth stalled and manufacturing production fell for a seventh straight month. Factory output has declined further since then, though that's the biggest weak spot in the economy.
Recent economic data "continue to suggest that the only substantial declines in real activity in the US economy are in manufacturing," the National Bureau of Economic Research said in a report posted this week on its Internet site.
At the same time, the Cambridge, Massachusetts-based group dropped a previous reference that data suggested the "possibility" a recession began recently. "Broader aggregates, such as employment and real personal income, haven't fallen significantly or at all," said the organization, which has a committee whose members decide when US recessions and expansions begin and end.
In June, sales of new and used vehicles rose 1.5 percent after increasing 0.2 percent in May, Commerce said. Automakers reported selling more Toyota Motor Corp sport-utility vehicles and DaimlerChrysler AG vehicles last month, pushing unit sales to an annual rate of 17 million, the highest since March.
Sales at electronics and appliance stores rose 1.1 percent in June after showing no change in May. Sales of building materials, hardware, garden supplies and other goods were unchanged in June.
Sales at clothing and accessory stores fell 1 percent after a 1.3 percent decrease. AnnTaylor Stores Corp, which sells women's clothing, Gap Inc, the largest US clothing retailer, and Limited Inc, the No. 2 clothing retailer, reported that sales declined in June as shoppers flocked to low-priced chains.
Furniture, home furnishings and equipment sales fell 0.1 percent after a 0.8 percent increase in May. Sales at gasoline service stations fell 1.8 percent in June after a 3 percent surge in May, reflecting lower gasoline prices. The average price of gasoline at the pump dropped as low as US$1.58 a gallon in June, down from as much as US$1.75 a gallon in May.
Lower gasoline prices gave consumers more money to spend on other goods. Sales at restaurants and bars rose 0.9 percent in June after rising 1 percent. 7-Eleven Inc, the biggest convenience-store chain, reported that sales at stores open at least a year rose 6.6 percent in June as customers bought prepaid phone cards and frozen Slurpee drinks with money saved on gasoline.
"We are very confident the second half of the year will be stronger than the first half," said 7-Eleven Chief Executive James Keyes in an interview Wednesday with Bloomberg Television.
Energy prices fell 2.5 percent in June after a 0.2 percent May increase, the Labor Department's report showed. Residential electricity prices fell 1.5 percent last month following a 0.7 percent increase in May. The June decrease was greater than the previous record drop of 1.3 percent in September 1995. Residential natural gas prices plunged 5.8 percent in June.
Prices for computers decreased 2.8 percent during June, following a 1 percent fall the prior month. Sales at Compaq Computer Corp have dropped as rival Dell Computer Corp cut prices on everything from PCs to servers used to run networks.
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