Retail Sales Stagnate on Unemployment

Target, Gap Sweeten Discounts to Lure Cautious Consumers; Car Dealers See Lift

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Sales at U.S. retailers stagnated in June as rising unemployment held consumers back.

The 0.1% increase reported by the Commerce Department in Washington today compared with the median forecast of a 0.1% drop in the Bloomberg News survey of 80 economists. Excluding auto sales, purchases were little changed, the weakest performance since July 2010.

Total sales were boosted by an unexpected increase in demand at auto dealers that will not influence figures on consumer spending for the second quarter that the government will publish later this month. Increasing joblessness prompted stores like Target Corp. and Gap Inc. to sweeten discounts to lure customers as a dearth of jobs raises the risk that household purchases will have difficulty picking up for the rest of 2011.

Discounts to clear inventory ahead of the back-to-school season helped June sales at chain stores beat analysts' estimates. Target , the second-largest U.S. discount retailer, posted a 4.5% increase from a year earlier, while demand at Gap Inc. rose 1%, beating projections for a drop, the stores reported last week.

"Consumers are cautious," said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. "There is still pretty slow momentum. It still shows we're in a fragile recovery."

Other reports today showed claims for jobless benefits and producer prices fell, and consumer confidence improved.

The number of Americans filing applications for unemployment benefits dropped last week to the lowest level since April, reflecting fewer-then-typical dismissals in the auto industry during the summer retooling period at auto makers, Labor Department data showed.

Wholesale costs dropped 0.4% last month, more than forecast and restrained by the biggest decrease in energy prices in two years, the Labor Department also reported.

Consumer confidence rose last week as households became more upbeat about the state of their finances. The Bloomberg Consumer Comfort Index increased to minus 43.9 for the period ended July 10 from minus 45.5 the prior week. Even with the gain, which is within the survey's 3-point margin of error, the gauge is lower than it was at the start of the year.

Economists' estimates ranged from a decline of 0.7% to a gain of 0.5%. The unchanged reading in non-auto sales matched the survey median.

Six of 13 major categories showed a decline in sales last month, led by a 1.3% drop at gasoline stations and 0.8% decrease at furniture stores.

In addition to auto dealers, gains were led by department and building material merchants.

Auto sales showed a 0.8% increase, running counter to industry data that is used to calculate gross domestic product.

Sales of cars and light vehicle ran at a seasonally adjusted 11.41 million annual rate in June, down from 11.76 million in May and 13.14 million in April, according to researcher Autodata Corp. Toyota Motor Corp. and Honda Motor Co. deliveries each fell 21% from the same month last year, reflecting supply-chain constraints linked to Japan's March earthquake, while General Motors Co. and Ford Motor Co. said sales rose 10%.

"The Japan crisis in and of itself was contributing to the slowdown, and that 's starting to be behind us," GM's vice president for U.S. sales, Donald Johnson, said on a July 1 teleconference. "While we've had these couple of bumps, we believe that the recovery will be back on track."

Excluding autos, gasoline and building materials, which are the figures used to calculate GDP, sales rose 0.1%, the smallest gain this year.

Payrolls grew by 18,000 last month, the smallest gain since September, the Labor Department reported July 8. The jobless rate climbed for a third straight month, rising to 9.2%, the highest level this year.

Federal Reserve Chairman Ben S. Bernanke told Congress yesterday the central bank is prepared to take additional action, including buying more government bonds, should the economy be in danger of stalling.

"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," Bernanke said in prepared testimony before the House Financial Services Committee in Washington.

-- Bloomberg News --

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