U.S. Retail Sales Up 0.4% on Automobiles, Gasoline

WASHINGTON—Weak retail sales in June intensified concerns about slower
economic growth in the second quarter as consumers showed signs of
wavering after a strong start to the year.

Overall retail sales increased by 0.4% last month to a seasonally
adjusted $422.79 billion, the Commerce Department said Monday, missing
analyst expectations of a 0.8% rise. Excluding two typically volatile
categories, automobiles and gasoline, retail sales dropped 0.1%.

The disappointing figures raised doubts about the strength of consumer
spending—a key anchor of the recovery—heading into the second half of
the year

"The June retail-sales number could indicate that the drag from higher
payroll and income taxes may still be weighing on the consumer, even
as we approach mid-year." said Michael Feroli, chief U.S. economist at
J.P. Morgan Chase .

The report led several economists to lower their estimates for
second-quarter growth in gross domestic product to an annual rate well
below 1%, following a 1.8% expansion in the first quarter and 0.4%
growth in the fourth quarter of 2012.

Economists at Royal Bank of Scotland Group now estimate annualized
growth of 0.5% in the second quarter, compared with an earlier
forecast of 0.8%. Barclays cut its second-quarter growth estimate by
0.1 percentage point to a 0.5% annual rate.

A measure of underlying consumer behavior—stripping out autos, gas and
building materials—rose only 0.1%, the smallest increase since
January. That figure is used in GDP estimates to track consumption.

Consumer spending, which accounts for more than two-thirds of total
demand in the U.S., had shown surprising resilience throughout the
year despite higher taxes and relatively modest economic growth. A
recent pickup in employment and wages could support spending in the
third quarter, said Paul Dales, senior U.S. economist at Capital
Economics. "But it is disconcerting that retail sales-growth lost more
momentum as the second quarter progressed."

U.S. retail sales have grown steadily since the depths of the economic
crisis, but flattened in March and April and then rose 0.5% in May.

Monday's report showed consumers are likely shelling out for
big-ticket items like cars, but pulling back discretionary spending in
areas such as department stores. Sales plunged at restaurants and
bars, posting the largest decline since February 2008.

Some consumers have been hit by furloughs from federal budget cuts
that bit into their spending ability. And most Americans still have
smaller paychecks due to an increase in payroll taxes at the start of
the year.

Last week, Family Dollar Stores Inc. said sales rose 9% for the
quarter ended June 1, primarily from consumers spending more on
consumable goods rather than making discretionary purchases.

"The economic backdrop remains very challenging for our customer,"
Family Dollar President Mike Bloom said in a conference call with
analysts. "She is stretching her budget and forced to make choices.
She is coming to us for her basic needs."

One bright spot was sales at auto dealers, which rose 1.8% and were up
more than 11% from a year ago. Separate industry data showed auto
sales were strong in June, with General Motors Co. reporting its
fastest selling pace since November 2007. Ford Motor Co. and Nissan
Motor Co. both said vehicle sales increased last month as well.

Spending at gasoline stations increased 0.7% on a seasonally adjusted
basis in June. Furniture stores saw an uptick in sales, possibly
reflecting a stronger housing market.

Some retailers may have boosted sales with promotions aimed at pushing
out spring merchandise and preparing for the busy back-to-school
season. Gap Inc. reported same-store sales growth of 7% in June.