Business

July retail sales report is weakest in 5 months

WASHINGTON — July retail sales 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 fragile economy could slow even more during 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 it followed a revised but still weak 0.3 percent reading for June.

Analysts said retail sales would have been more feeble without the $92 billion in government rebate payments sent out in May, June and July. Those checks helped to counter plunging home prices, rising unemployment and soaring gasoline prices.

But now the bulk mailings are over, leaving economists worried about what will happen next to spending.

”Cautious and uncertain consumers are watching their wallets, and with the back-to-school shopping season under way, that does not bode well for retailers,“ said Joel Naroff, chief economist at Naroff Economic Advisors.

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

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

The overall economy grew at an annual rate of 1.9 percent during the April-June quarter, helped in part by the stimulus payments. Wyss said he was looking for growth of about 2 percent in the gross domestic product during 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 effect 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.

Nigel Gault, chief U.S. economist at Global Insight, a forecasting company in Lexington, Mass., said he expected GDP to shrink at an annual rate of 0.7 percent during the fourth quarter of this year and to drop by 0.4 percent during the first quarter of next year. He said he was looking for these declines even with the help the economy will get if energy prices keep falling.

”I think there are too many negatives, and the negatives are too large for a gasoline price decline to change the story significantly,“ he said.

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