WASHINGTON (AP) - Americans increased their
retail spending in July by the most in five months, opening their
wallets after a frugal spring and offering hope that the slumping
economy may rebound in the second half of the year.
Retail spending rose in
every major category, from electronics and sporting goods to furniture,
building supplies and garden equipment. The report from the government
followed one earlier this month that showed hiring strengthened in July.
Overall retail sales rose
0.8 percent from June to July, the Commerce Department said. It was the
sharpest increase since February, and it followed three months of
declines.
The stepped-up spending was evident in a flurry of retail earnings reports for the second quarter, which ended in late July.
Home Depot, the nation's
largest home improvement retailer, said healthy sales of paint, bathroom
accessories and kitchen installations helped lift its net income 12
percent.
Macy's raised its annual
earnings guidance last week after reporting a 16 percent increase in net
income in the second quarter. Macy's executives specifically cited a
pickup in their teen clothing business, which had been weak.
TJX Cos., which sells
discounted brand names under such store banners as T.J. Maxx and
HomeGoods, said its second-quarter net income jumped 21 percent on
better same-store sales.
"People are spending a
little more and feeling a little better about the economy," said James
Donnelly, a sales associate at Boston-based Tadpole, which sells infant
wear, children's clothing and toys.
Donnelly says he's seen an
increase in business and traffic in recent weeks. The store has run 40
percent discounts on summer merchandise. Shoppers are also buying some
back-to-school items, like backpacks and clothing.
Americans appear to be taking their cues from the economy's modest but steady improvements.
Employers added 163,000
jobs in July, the best month for job growth since February. Home prices
are up. The value of U.S. exports reached a record high last month. U.S.
consumers are expressing more confidence. And stock indexes are near
their highs for the year.
"I am looking for a better
second half of the year, in part because I think business will become
more confident, and they will increase their hiring," said Joel Naroff,
chief economist at Naroff Economic Advisors.
Naroff predicts the
government will revise growth in the April-June quarter to an annual
rate of 2 percent, up from the 1.5 percent reported last month. He
predicts growth will then accelerate to 2.6 percent in the
July-September quarter and 3.3 percent in the final three months of the
year.
Still, the overall economy
remains subpar with the presidential and congressional elections less
than three months away. Unemployment is high at 8.3 percent. Consumer
spending on goods and services, which drives roughly 70 percent of
growth, grew by only 1.5 percent in the April-June quarter, the weakest
pace in a year.
Some economists cautioned
that part of the July increase in retail spending was inevitable after
consumers cut spending in each of the months in the April-June quarter.
Consumers will likely sustain their spending increases only if hiring
continues to strengthen, they said.
In the meantime, many Americans remain anxious about the job market, slow wage gains and high debts.
"Consumers hunkered down
all through the spring, and then they came out in July and decided to do
some overdue spending," said Chris Christopher, a senior economist at
IHS Global Insight. "But until we see more months of spending gains, we
should be very cautious about how we evaluate the situation."
A brighter outlook for the
economy could make the Federal Reserve hold off on taking further action
to boost growth when its policy committee meets in September.
The Fed signaled in late
July that it was ready to act if growth and hiring stayed week. That led
many economists to predict the Fed would announce a third round of bond
purchases designed to push long-term interest rates down and generate
more borrowing and spending in the economy.
"As long as you have signs
that the economy is either holding its own or getting a little better,
then the Fed doesn't have a reason to do anything," Naroff said.
Inflation does remain mild,
which gives the Fed more leeway to act if it decides the economy needs
further help. The Labor Department said in a separate report Tuesday
that wholesale prices rose 0.3 percent in July from June. Lower energy
prices offset sharp gains in the costs of food, cars and light trucks.
The most critical measure of the economy's health will be the August employment report released Sept. 7.
Over the past 29 months, U.S. companies have added 4.5 million jobs.
A new job gave Lan Smith
and her husband more spending freedom this year. She had been unemployed
for 18 months when she was hired in January as an administrative
assistant for a non-profit.
The couple splurged this
summer on a new chaise lounge and chairs for their living room - their
first furniture purchases in a decade. They also bought a new Honda
Insight this year to replace their 9-year-old Hyundai Sonata.
The big purchases were a
departure from the couple's strict budgeting that began in 2009. Still,
Smith said they remain cautious as both she and her husband have lower
incomes than they did 10 years ago. And their health care premiums
recently went up.
"It feels like every time we take a step forward, we take a step back," she said.
File Photo (WCIV)
