Car-buying spurs retail sales rebound By MARTIN CRUTSINGER, AP Economics Writer

Car-buying spurs retail sales rebound By MARTIN CRUTSINGER, AP Economics Writer
20 minutes ago



WASHINGTON - Retail sales posted a modest gain in August, helped by the biggest jump in auto sales in more than a year. But there are concerns that spending could falter as the steep slump in housing and financial market turbulence weigh on consumer confidence.

ADVERTISEMENT

The Commerce Department reported Friday that retail sales increased 0.3 percent in August, compared to July, when sales had been up by 0.5 percent. The strength last month was led by a 2.8 percent jump in auto sales, the biggest increase since July 2006.

The increase in retail sales was just about half what had been expected. In another sign of weakness, industrial production in August edged up by just 0.2 percent. It was the poorest performance in three months and reflected a 0.3 percent drop in output at U.S. factories, the first decline in manufacturing after five straight increases.

The gain in industrial otuput followed much stronger increases of 0.5 percent in July and 0.6 percent in June. The drop in manufacturing output was accompanied by a decline of 0.6 percent in mining, the category that includes oil production. These declines were offset by a 5.3 percent surge in output at the nation's utilities, reflecting a hotter-than-usual August.

A separate report Friday showed that consumer confidence, as measured by the RBC Cash Index, fell to 71.1 in early September, a sharp drop from an August reading of 89.3. It was the worst showing for the survey, done by polling firm Ipsos, since May 2006.

Meanwhile, the government said that the current account, the broadest measure of trade, totaled $190.8 billion in the second quarter, down 3.1 percent from a $197.1 billion in the first three months of the year.

The trade improvement supported the view of economists that America's trade deficit, after setting records for five consecutive years, should show finally begin to decline in 2007, helped by stronger overseas growth and a weaker dollar, which boosts the competitiveness of American products.

The weaker-than-expected 0.3 percent rise in retail sales did not dispel worries that consumer spending, which accounts for two-thirds of total economic activity, could falter in coming months under the impact of a serious credit crunch and rising gasoline prices.

"We expect a clearly slowing trend," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "Lower confidence and the accelerating housing collapse will hurt."

The Federal Reserve is scheduled to meet next Tuesday and there is a widespread belief that the central bank will cut a key interest rate for the first time in four years, hoping that cheaper credit will give the economy a boost.

Financial markets have been roiled since early August by rising worries that loans to consumers and businesses are becoming harder to obtain as banks and other lenders tighten standards. The credit crunch began with rising defaults on subprime mortgages, home loans provided to borrowers with weak credit. But those problems have since spread to other lending areas and have also roiled global financial markets.

The retail sales performance would have been much weaker without the big gain in auto sales in August. Excluding autos, retail sales would have fallen by 0.4 percent, the poorest showing in nearly a year.

Part of the weakness in August came from a 2.4 percent drop in sales at gasoline stations, reflecting declining prices. However, with oil rising to new records above $80 per barrel, analysts predicted that gasoline prices will start rising again, a factor that will mean consumers will have less to spend on other items.

Sales at department and general merchandise stores edged up 0.3 percent in August, reflecting strong back-to-school sales. Sales at furniture stores were up 0.5 percent but hardware stores saw sales decline by 1 percent. Sales at specialty clothing stores dropped by 0.1 percent.