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US retail sales basically flat in July; recent job growth fails to boost consumer spending

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WASHINGTON - U.S. retail sales were essentially flat in July, providing evidence that consumers have yet to shed their doubts about the economy despite recent job gains.

The Commerce Department said Wednesday that seasonally adjusted retail sales were unchanged in July compared with the prior month. Total sales rose a statistically insignificant $161 million from $439.6 billion in June.

Spending dipped at auto dealers and department stores last month. The losses were offset by gains at grocery stores, gasoline stations, restaurants, clothiers and building material stores.

The figures suggest that Americans are hesitant to spend, which could limit growth for the economy. Retail sales are closely watched because consumer spending accounts for 70 per cent of economic activity.

Retail sales have flat-lined even though employers have added more than 200,000 jobs a month for the past six months. Payrolls increased by 209,000 in July and 298,000 in June.

But those gains have yet to meaningfully boost wage growth above inflation, causing spending to be more restrained.

Retail sales have increased 3.7 per cent over the past 12 months, but economists doubt that spending can grow much faster unless incomes increase.

"Consumers just don't have the cash flow to finance sustained gains above 4 per cent," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

The weak sales in July mean that consumer spending is off to a slow start in the third quarter.

Consumer spending did pick up in the April-June quarter after a sluggish showing in the first three months of the year. It grew at a 2.5 per cent annual pace, after increasing just 1.2 per cent in the first quarter, which was the weakest reading in nearly three years. In a healthy economy spending growth is typically 3 per cent or higher.

Americans are sending mixed signals about their willingness to spend. Consumer confidence jumped to its highest level in nearly seven years in July, according to the Conference Board. That suggests Americans may be more willing to open their wallets.

And auto sales grew 9 per cent in July from a year earlier to 1.4 million, the best showing for July since 2006.

But purchases of large items like autos may be leaving many Americans with less money to spend on discretionary items like clothing and electronics. Rising grocery prices may have squeezed household budgets as well.

A separate measure of consumer sentiment by the University of Michigan, released last week, showed that confidence slipped last month.

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