Auto Plan Probably Boosted Retail Sales: U.S. Economy Preview

Auto Plan Probably Boosted Retail Sales: U.S. Economy Preview


Aug. 9 (Bloomberg) -- The Obama administration’s cash-for- clunkers plan probably gave auto dealers a boost in July, while other retailers struggled to lure customers constrained by ongoing job losses, economists said before reports this week.

Total purchases climbed 0.7 percent, the most in six months, according to the median of 54 estimates in a Bloomberg News survey ahead of Commerce Department figures due Aug. 11. Excluding autos, retail sales probably rose just 0.1 percent.

“This is a cash-for-clunkers story, but consumers are still not looking great,” said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. “Consumers have been hit hard not only by the labor market, but also by destruction of their balance sheets.”

Households may limit spending and increase savings for years to come to repair the damage done by a record $13.9 trillion loss in wealth as home prices and stocks plunged last year. Other reports may show manufacturing picked up and inflation abated, and Federal Reserve policy makers are expected to maintain a steady course when they meet this week.

Industry data showed sales of cars and light trucks rose to an 11.2 million annual unit pace in July, the highest since September, after the government offered credits of as much as $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles.

President Barack Obama last week signed into law an emergency measure giving an additional $2 billion to the cash- for-clunkers program after the original $1 billion ran out three months earlier than projected. The infusion of funds was intended to extend the program through August.

Other Retailers

Other retailers haven’t had as much success. The projected increase in non-auto retail sales would be the smallest in three months.

The economy lost 247,000 jobs in July, down from a 443,000 drop the prior month and the fewest since last August, the Labor Department reported last week. Retailers cut 44,000 positions, more than twice the 21,000 eliminated in June.

The report also showed the jobless rate unexpectedly dropped to 9.4 percent from 9.5 percent in June as discouraged workers left the labor force.

The Standard & Poor’s 500 Index closed last week at a 10- month high as evidence mounted that the worst of the recession had passed. The index has climbed 9.9 percent since June 30.

Automakers

The payroll figures also showed automakers added 28,000 workers in July, the biggest gain in more than a decade, as General Motors Co. and Chrysler Group LLC emerged from bankruptcy.

The automakers’ return also probably contributed to a pickup in industrial production for July, economists forecast figures from the Fed may show on Aug. 14. Output climbed by 0.4 percent, according to the survey, the first gain since October.

The jump in sales last month may cause production to rise again in August. GM will look at introducing third shifts, paying overtime and reopening closed plants as a result of the clunkers discounts, Mike DiGiovanni, a sales analyst for the company, said last week in a Bloomberg Television interview.

“We are looking at the cash-for-clunkers as a booster shot to get us through the fragile economic recovery to the other side, where the economy has legs under it, which we think will happen as the year moves on and then we will not need cash-for- clunkers anymore,” he said.

The cost of living was probably unchanged in July after a 0.7 percent gain the prior month, economists in a survey predicted, restrained by a drop in gasoline prices and discounts by merchants trying to boost demand. The Labor Department’s report on the consumer price index is due Aug. 14.

Imports

A report from Labor on Aug. 13 may show prices of imported goods fell last month as fuel costs dropped back after surging in June, economists forecast.

The jump in fuel prices in June probably caused the trade deficit to widen, reflecting an increase in the value of imported crude, economists said. The trade gap probably grew to $28.5 billion that month from $26 billion in May, the survey showed. Commerce will release that report on Aug. 12.

Rising stock prices and signs the recession has eased may be helping consumer confidence rebound this month, economists project an Aug. 14 report from Reuters/University of Michigan may show. A preliminary sentiment gauge for August may rise to 68.8 from 66 in July. It reached a three-decade low of 55.3 in November.

Finally, the Fed, in its two-day policy meeting beginning Aug. 11, is likely to renew pledges to keep rates low. As recently as July 21, Chairman Ben S. Bernanke told Congress the Fed “anticipates that economic conditions are likely to warrant maintaining the federal funds rate at exceptionally low levels for an extended period.”

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