Car, gas sales seen boosting August retail sales

[March 19, 2010]  WASHINGTON (AP) -- Consumers bought hundreds of thousands of cars in August due mainly to the government's popular Cash for Clunkers program, but economists expect Americans didn't boost their spending on much else.

Still, analysts will scrutinize the Commerce Department's report on August retail sales for signs that a budding economic recovery is spurring greater consumer spending. The government also is scheduled to release a report on wholesale prices Tuesday that's expected to show inflation remains under control.

Economists forecast the retail report will show sales increased 2 percent last month. But excluding autos, they only expect a 0.4 percent rise, according to a survey by Thomson Reuters.

Some of the remaining increase is due to a 3.5 percent rise in gas prices last month. Excluding autos and gas, some economists expect an increase of only 0.1 percent when the report is released Tuesday morning.

That suggests "the surge in motor vehicle sales pulled spending away from other big-ticket discretionary items such as furniture and building materials," economists at Deutsche Bank wrote in a note to clients.

The clunkers program, which ended last month, provided consumers with rebates of up to $4,500 if they traded in older gas-guzzlers for new, more fuel-efficient models. The incentive boosted car sales by 30 percent in August, after a 2.4 percent rise in July.

Consumer spending is closely watched because it accounts for about 70 percent of the nation's economic activity. Economists at JPMorgan Chase & Co. forecast such spending could grow 2 percent in the July-September quarter, contributing to a 4 percent jump in the economy during the same period.

But many economists believe that without consistent spending growth, the recovery could weaken next year, as government stimulus efforts end.

Some recent economic reports have been positive. Last week, the Federal Reserve said in a regional survey that the economy is stabilizing or improving in the vast majority of the country.

Still, retail sales remained "flat" in most regions, the Fed said in its report that covered July and August.

Meanwhile, President Barack Obama on Monday credited his administration and the $787 billion stimulus package rammed through Congress in the first days of his taking office for helping to prevent an even worse economic downturn.

"And though I will never be satisfied while people are out of work and our financial system is weakened, we can be confident that the storms of the past two years are beginning to break," he said in a speech on financial reform in New York.

The nation's gross domestic product, the broadest measure of the economy's output, fell 5.5 percent in last year's fourth quarter and the first three months of this year, the worst six-month showing in nearly 50 years.

But in the April-June quarter the decline slowed to 1 percent. Many analysts expect the economy will grow in the second half of this year, pulling the country out of the worst recession since the 1930s.

Another government report is forecast to show that wholesale prices rose last month after dropping in July due to a steep decline in energy prices. Economists are not worried about inflation, however, as the economy struggles to mount a sustained recovery.

The Labor Department report is likely to show the Producer Price Index, tracks the prices of goods before they reach store shelves, rose 0.8 percent in August, after a 0.9 percent dip in July.

Stripping out volatile food and energy prices, the so-called "core" inflation rate for wholesale goods is expected to nudge up 0.1 percent in August, compared with a 0.1 percent dip in July.

The Labor Department said last month that over the 12 months ending in July, wholesale prices dropped 6.8 percent. That's the biggest decline in records dating to 1947, and due partly to falling oil and gas prices.

"In this economy, there really is no pricing power at all," Brian Bethune, chief U.S. financial economist at IHS Global Insight, said after the July report.

A third report is likely to show that businesses trimmed their inventories for the 11th straight month in July, but the reduction is expected to be at a slower pace than in the previous month as sales show modest signs of improving.

Wall Street economists expect that businesses cut inventories 0.9 percent after a 1.1 percent drop in June, according to a survey by Thomson Reuters.

Inventories have fallen for 10 straight months, the longest stretch since there were 15 consecutive declines in 2001-2002, a period that covered the last recession. The reductions have translated into sharp production cutbacks at factories, a key drag on the economy.

The hope is that sales will strengthen in coming months as the economy pulls out of the downturn. That would boost production as companies restock inventories.

[Associated Press; By CHRISTOPHER S. RUGABER]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.