Shoppers didn't spend as much as expected in June
WASHINGTON - The economic boost from US tax rebates began to fade in June and inflation pressures increased, reports yesterday showed, pointing to a possible contraction later this year.
Retail sales rose 0.1 percent from the previous month, the Commerce Department said yesterday. That was less than economists forecast. At the same time, the Labor Department reported that producer prices jumped 1.8 percent, the most since November. From a year ago, prices climbed 9.2 percent, a surge unseen since 1981.
"The momentum faded at the end of the quarter," said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Conn. "Consumer spending will be weaker in coming months."
The figures increased concern that falling home values, rising unemployment, and tighter credit will cause consumers to retrench even more. Traders pared bets that the Federal Reserve will increase interest rates by the end of the year.
The dollar weakened the most against the yen since the March collapse of Bear Stearns Cos., while Treasuries rose, pushing the yield on the 10-year Treasury down 2 basis points to 3.83 percent at 4:17 p.m. from 3.85 percent Monday.
The Standard & Poor's 500 Index dropped 1.1 percent to close at 1,214.91, its lowest level since 2005.
Retail sales were projected to rise 0.4 percent after an originally reported 1 percent gain the prior month, according to the median estimate in a Bloomberg News survey of 81 economists.
Sales excluding automobiles increased 0.8 percent. They were forecast to increase 1 percent from the prior month, according to the survey median.
Americans bought fewer cars, furniture, electronics, and building materials as gasoline prices soared. Yesterday's report showed sales at automobile dealerships and parts stores dropped 3.3 percent, the most since February 2006.
Energy prices also pushed producer expenses higher. Excluding food and energy, the increase was 3 percent from a year earlier, the same as the prior month. Food was 1.5 percent more costly, after a 0.8 percent change the previous month. Vegetables jumped 14.7 percent.
"It was primarily confined to the energy sector," said Lindsey Piegza, an analyst at FTN Financial in New York, which correctly forecast the rise in the core rate. "There is risk that in the future they could seep through and cause an inflationary spiral, but right now inflation is going to take a backseat to the slowing economy" on the list of Fed concerns.
The retail numbers are consistent with industry figures which signaled Americans are shunning big-ticket purchases. Cars and light trucks sold in June at a 13.6 million annual pace, the weakest since 1993, according to data issued earlier this month.
Sales of furniture fell 1.4 percent and purchases of electronics dropped 0.6 percent. Both were the biggest declines so far this year.
A surge in receipts at service stations as gasoline prices rose to a record prevented total sales from falling. Filling station purchases jumped 4.6 percent last month, the most since November. Excluding gas, retail sales declined 0.5 percent, the biggest drop this year.
Regular unleaded fuel prices topped $4 a gallon for the first time in June and have continued climbing this month, according to AAA.
The jump in fuel prices may have also caused Americans to limit visits to restaurants. Sales at food services and bars fell 0.2 percent.
Retailers that gained sales last month included grocery, healthcare, clothing, and sporting goods stores.
