Retail sales drop 0.1% in July

Retail sales in July delivered the weakest performance in five months as shoppers shunned autos while they paid more for gas.

With the mass mailings of $92 billion in rebate checks now just a memory, there is concern the economy could slow even more in the second half of this year.

The Commerce Department reported Wednesday that retail sales fell 0.1 percent last month, the first decline since a 0.5 percent tumble in February. It was a worse showing than the flat reading economists had been expecting and followed a revised but still weak 0.3 percent reading for June.

Gasoline prices have been falling since hitting a high of $4.11 per gallon and that should help consumer spending in coming months, economists said. But they wonder if that will be enough to offset the loss of the stimulus checks.

David Wyss, chief economist at Standard & Poors in New York, said he believed consumers will spend about 60 percent of what they receive in the first three months after getting the check, deciding to save the rest. That would be similar to when the government used tax rebates to fight the 2001 recession.

The overall economy grew at an annual rate of 1.9 percent in the April-June quarter, helped in part by the stimulus payments. Wyss said he was looking for growth of around 2 percent in the gross domestic product in the current July-September quarter. But he forecast the GDP would shrink in the final three months of this year and the first three months of next year, as the impact of the rebate checks wears off.

Two consecutive quarters of falling GDP is the classic definition of a recession. Other economists said they also were looking for negative GDP then.

Auto sales fell by 2.4 percent in July – another dismal month for automakers who saw sales activity plunge to the lowest level in 16 years as the economy and rising layoffs severely dampened demand.

Excluding the big drop in autos, retail sales would have posted a 0.4 percent increase. While that was a positive reading, it was still the weakest showing for sales excluding autos in five months.

Much of what little strength there was in July came from a 0.8 percent jump in sales at gasoline stations because of surging prices rather than increased demand.

Democrats in Congress have begun to push for a second stimulus package to keep the economy afloat in coming months. So far, the Bush administration has opposed that.