US retail sales edged down 0.1 percent in July on a big drop at auto dealers, the government said on Wednesday in a report suggesting consumers were straining to keep spending up amid rising prices. A separate report showed a bigger-than-expected jump in import prices, underlining the pressure costlier oil was putting on the economy.
Over the past 12 months, import prices have soared 21.6 percent - the biggest gain in 26 years. The drop in retail sales reported by the Commerce Department was the first since February and suggested a big boost to spending from government stimulus checks was fading.
Auto sales fell 2.4 percent, the biggest drop since April, and were off a whopping 10.5 percent from a year ago. "This data is consistent with our bearish forecast of personal consumption throughout the second half of 2008," said Joseph Brusuelas, chief economist at Merk Investments.
"Going forward a tight credit environment, a deteriorating labour sector and elevated prices will act as a significant constraint on consumption," he said. Import prices rose 1.7 percent in July, the Labour Department said. Petroleum prices were up 4 percent from June and were a huge 79.2 percent higher than in July 2007, while non-petroleum import prices gained 0.9 percent for a second consecutive month.
"There is potential inflation outside of oil and the credit markets get a little nervous when they believe that food and energy price inflation might spread," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri.
The Federal Reserve's policy-making Federal Open Market Committee decided early this month to keep its trendsetting discount rate at a low 2 percent, aiming to help a weak economy as long as possible while global oil prices are moderating.
Prices for goods imported from China - a key supplier of US consumer products - climbed 0.9 percent in July and were up 5.3 percent in the past year, the largest 12-month rise since the Labour Department began tracking Chinese prices in December 2003.
In a separate report, the Commerce Department said June business inventories were up by a larger-than-expected 0.7 percent despite relatively strong sales. Retailers, however, trimmed their stocks of unsold goods for a second straight month in an evident bid to keep inventories lean for fear that consumer spending will weaken as the year wears on.
GASOLINE PRICE RELIEF: High gasoline prices are taking a toll on new-car sales, but excluding autos, retail sales were up 0.4 percent in July, which was roughly in line with forecasts, following a 0.9 percent rise in June.
Economists said before the report was issued that spending has been supported by government stimulus checks but that was waning in July because most of the checks already have been issued. Meanwhile, prices for many food items are on the rise and there was only a slight moderation in gasoline prices during the month.
Commerce said gasoline sales in July were up 0.8 percent after a 4 percent June jump. But reflecting higher prices, gasoline sales were 24.6 percent higher than in July last year. Excluding gasoline, retail sales in July fell 0.2 percent after a 0.1 percent June decline.
Record-high gasoline prices have forced Americans to cut back on the number of highway miles they drive. The Transportation Department said on Wednesday that Americans drove 12.2 billion miles, or 4.7 percent, less in June compared with a year earlier.
It was the eighth month in a row driving declined. Since November, US motorists have driven 53.2 billion fewer miles than they did over the same period a year earlier, topping the total drop of 49.3 billion miles seen in the 1970s.
While gasoline prices have begun to edge down in a welcome sign for US consumers, they are still well above a year ago and, in combination with tight credit, are making people wary about taking on big financial commitments.
That was apparent in data from the Mortgage Bankers Association showing its seasonally adjusted index of mortgage application activity declined 1.5 percent in the week ended August 8 to 425.9, nearing levels seen in late July, which were the slowest in more than seven years. The housing market is in its severest slump since the Great Depression and average 30-year fixed mortgage rates rose to 6.57 percent in the August 8 week from 6.41 percent in the previous week.
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