Retail Sales Fall 0.3 Percent in August

WASHINGTON – Retail sales slid in August as people steered away from buying cars and shoppers kept a close eye on their spending after splurging in July.

The Commerce Department reported retail sales fell by 0.3 percent in August, following a 0.8 percent gain the previous month. In recent months, overall retail sales have exhibited a seesaw pattern, sales going up one month, down the next.

“August represented another notch in a schizophrenic summer for retail sales,” said Rosalind Wells, chief economist at the National Retail Federation. “Retailers are hoping that fall and winter sales are more consistent and predictable.”

The decline in overall retail sales in August mostly reflected a 1.9 percent drop in automobile sales, which had risen 2.2 percent in July. Paul Taylor, chief economist at the National Automobile Dealers Association, said the decline came despite incentives and promotions to lure buyers. “The soft spot in the economy made consumers less willing to take on a new vehicle purchase,” he said.

Excluding sales of cars, which can swing widely from month to month, sales by other merchants rose by 0.2 percent in August. That was down from a 0.3 percent increase in July but still marked the fourth straight monthly rise.

In August, sales posted declines at furniture, clothing and department stores. Sales at bars and restaurants also fell. Sales registered gains, however, at building and garden supply shops, electronics and appliance stores, sporting goods, books and music stores, health and beauty shops and gasoline stations.

The mixed retail picture reflects shoppers’ being selective in their purchases given the impact of high energy prices, which have left people with less money to spend on other goods and a labor market that is recovering slowly, said Sung Won Sohn, chief economist at Wells Fargo.

Bad weather in some parts of the country and a late Labor Day weekend, which came a week later than a year ago and pushed sales into the September reporting period, also affected August’s sales, economists said.

Separately, the deficit in the broadest measure of trade swelled to an all-time high of $166.2 billion in the second quarter of this year, surpassing the previous record deficit of $147.2 billion, set in the first quarter, the department said in a second report.

The “current account” report is considered the best measure of a country’s international economic standing because it tracks not just the goods and services reflected in the government’s monthly trade reports but also investment flows between countries and unilateral transfers, including U.S. foreign aid payments.

With Election Day less than two months away, President Bush and his Democratic rival, John Kerry, spar frequently about the economy, trade and the availability of jobs.

Bush says the best way to handle yawning trade deficits is to get other countries to remove trade barriers and open markets to U.S. companies. Kerry points to the deficits as evidence the president’s free-trade policies aren’t working and have contributed to job losses.

On the retail front, economists closely watch consumers’ behavior because their spending accounts for roughly two-thirds of economic activity in the United States.

Federal Reserve Chairman Alan Greenspan, appearing before Congress last week, largely blamed high energy prices for a slowdown in consumer spending in the late spring and early summer. He indicated then that August’s sales report probably wouldn’t match the July bounce.

Some private economists remain hopeful that consumer spending in the July-to-September quarter will grow at an annual rate of 3 percent to 3.5 percent, which would mark an improvement over the 1.6 percent pace in the second quarter.

“We know that higher energy prices are nibbling away at consumers’ spending power, and a relatively slow job market is adding to their hesitancy to spend more freely. In this type of environment, solid but not enthusiastic spending actually is a good sign,” said Oscar Gonzalez, economist at MFC Global Investment Management.

Against this backdrop, Fed policy-makers are widely expected to boost short-term interest rates for a third time this year when they meet next week. That would raise a key rate controlled by the Fed to 1.75 percent, from the current 1.50 percent.