US retail sales slows in August

US retail sales rose in August at the slowest pace in three months, tempered by limited job and income growth, economists said before a report this week.

The projected 0.2 per cent gain would follow a 0.5 per cent increase in July, according to the median forecast in a Bloomberg News survey ahead of Commerce Department figures on September 14. Production slowed in August and inflation cooled from the previous month, other reports may show.

Retailers JC Penney Co and Target Corp say sales gains are more difficult because of a stagnant labor market that’s battered confidence. The risk of a broader pullback in spending, which accounts for about 70 per cent of the economy, increases pressure on the Federal Reserve, Obama administration and Congress to craft a plan to ensure the recovery is sustained.

“Consumers are reluctant to spend on anything outside of what they need,” said Sean Incremona, a senior economist at 4Cast Inc in New York. “Policy support is going to be needed.”

The retail report may also show purchases excluding automobiles rose 0.2 per cent last month after a 0.5 per cent increase in July, economists said. The auto industry is recovering from supply disruptions due to Japan’s earthquake in March, which hurt production and sales the past few months.

Cars and light trucks sold at a 12.1 million seasonally adjusted annual rate in August, down from a 12.5 million pace in the first half of the year and little changed from July, according to researcher Autodata Corp.

Spending on so-called big-ticket items such as cars and appliances is threatened by a lack of job creation. Payrolls were unchanged last month and the unemployment rate held at 9.1 per cent, Labor Department figures showed.

A plan from President Barack Obama, announced before a joint session of Congress on September 8, called for an extension of a payroll-tax break for Americans and unemployment assistance. He also pushed for a payroll tax break for small businesses, an increase in infrastructure spending and more aid for cash- strapped state governments.

Congressional approval “would dramatically reduce the risk of a long period of much weaker growth,” Treasury Secretary Timothy F Geithner said in a interview with Bloomberg Television in Marseille, France.

Americans are pessimistic, a report may show on September 16. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 56.6 in September from an almost three-year low of 55.7 the prior month, economists in the Bloomberg survey projected.

Sales gains at Target, the second-largest US discount retailer, are “a bit more challenging” than expected at the beginning of the year, according to executives.

“What we’re experiencing now is what we expect for quite some time,” Douglas Scovanner, chief financial officer of Minneapolis-based Target said. “This is a challenging environment.”

Plano, Texas-based JC Penney, like other retailers, is seeing less mall traffic and more cautious consumer spending on non-essential products, according to Chief Executive Officer Myron Ullman.

“Everybody wishes the economy were better, the job growth, real income growth and the things that drive the economy were more vibrant”. “The upper-income customer, with more exposure to the stock market, has been more enthusiastic about discretionary spending and the bottom quartile customer has had to make it work with high unemployment and gas prices and food prices.”s

Some retailers are faring better. Luxury chains Saks Inc and Nordstrom Inc said last week that demand from high-end consumers is holding up, and they’re sticking to their sales forecasts.

The Standard & Poor’s Supercomposite Retailing Index has fallen 9.3 per cent since July 15, while the broader S&P 500 Index declined 12 per cent during the same period.

Manufacturing, which has been a source of strength for the recovery, is also losing steam. Fed data will show output at factories, mines and utilities increased 0.1 per cent in August, the smallest gain in four months, after a 0.9 per cent rise in July, according to the Bloomberg survey median. The industrial production figures are due on September 15.

The slowdown may have extended into this month. Regional Fed reports, also scheduled for September 15, may show manufacturing in the New York and Philadelphia areas contracted in September, economists forecast.

With economic growth softening, inflation is easing, a Labor Department report may show this week. The consumer-price index, the broadest of the monthly price gauges, rose 0.2 per cent in August after a 0.5 per cent gain the prior month, according to the Bloomberg survey.