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Wholesale prices, retail sales rise in June

July 15, 2009|Ylan Q. Mui and Neil Irwin

Higher gasoline prices helped boost June retail sales 0.6% compared with the previous month, the government said Tuesday, but economists worried that prices at the pump would dampen consumers' discretionary spending in the long run.

Sales at gas stations rose 5% in June compared with May, the biggest increase of any category. The price of gas went from $2.50 a gallon to nearly $2.64 in June before moderating at the end of the month.

"That's actually a bad thing," said Paul Ashworth, senior U.S. economist for Capital Economics. "It's not like consumers are getting any more for their money. It's just costing them more to fill up their vehicle."

Wholesale inflation, meanwhile, came in twice the level analysts expected for June, according to a separate government report.

The producer price index rose 1.8%, driven by higher fuel prices.

Even excluding volatile food and energy prices, the index rose 0.5%, compared to a 0.1% drop in May and a forecasted rise of 0.1%.

The numbers are consistent with other data in recent months that suggest that the economy is not entering into a dangerous process of deflation, in which falling prices lead people to pull back on spending in a self-reinforcing cycle.

Retail sales are vital to the nation's economic health, because consumer spending accounts for roughly 70% of the gross domestic product. June marked the second consecutive month of growth, but sales remain 9% below the same month last year.

Auto sales had the second-biggest increase, at 2.3%. Electronics and appliance stores also made gains last month, up 0.9%, after struggling to persuade shoppers to buy such big-ticket items as flat-panel TVs.

Sporting goods stores also rose 0.9%, and supermarkets inched up 0.2%. But department stores continued to struggle, with sales dropping 1.3%, the largest decline of any category.

The report "suggests that real consumer spending continues to stabilize, but is not yet on a firm recovery path," said Patrick Newport, a U.S. economist for IHS Global Insight.

Discounting the effect of autos, gas and restaurants, retail sales declined 0.2% in June from the previous month, according to an analysis by the National Retail Federation, a trade group.

Its chief economist, Rosalind Wells, said consumers continue to be constrained by the rising unemployment rate and uncertainty about the prospects of recovery.

"Although several economic indicators are starting to show signs of improvement, it is going to take a few more months -- maybe longer -- for people to feel comfortable spending again," she said.

Industry experts said retailers must remain on guard. According to an analysis by Goldman Sachs and the International Council of Shopping Centers, a trade group, sales at the country's biggest chain stores fell 0.9% last week compared with the previous week. Cooler weather and sparse inventory dragged down the results.

"Mother Nature was not kind," said Michael P. Niemira, chief economist for the shopping centers group. "July will likely be another tough month."

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Mui and Irwin write for the Washington Post.

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