Consumers Subdued But Spending Holds Up

U.S. consumers shopped sparsely last week -- and only for basic necessities -- with some experts saying stock market worries have begun to spread beyond Wall Street and into the average consumer's wallet.

Consumer spending accounts for around two-thirds of economic activity in the United States, so analysts tend to scour retail data for clues about the nation's financial well-being.

While July is generally considered a slow month for retailers, U.S. chain store sales rose 0.4 percent in the week ended July 20 -- after a 0.3 percent dip in the previous week -- mostly on basic food and pharmacy purchases, the Bank of Tokyo-Mitsubishi and UBS Warburg reported on Tuesday.

A separate gauge of weekly performance in the retail industry, published by Instinet Research, showed flat sales during the first two weeks of July compared with the same period in June.

"There's no question that the somber mood that has enveloped the country as a result of what's happening on Wall Street is permeating consumer sentiment and consumers' sense of what they should or should not buy," said Kurt Barnard, president of Barnard's Retail Consulting Group.

Apart from the trickle-down effect of stock market doom and gloom, July tends to be a transitional month for retailers -- it comes after sales of summer clothing and seasonal goods like air conditioners have started to wind down, but before the industry gets its yearly boost from back-to-school shoppers.

On the bright side, retailers that have suffered from weak pricing power as the economy emerges from the doldrums can take solace in the fact that economic pressures have forced them to keep their inventories at low levels, Redbook said.

That means summer clearance sales have been less aggressive this year, and will therefore make less of a dent into chain stores' profits.

J.P. Morgan economist William Sharp was more optimistic about the impact of the stock market decline on consumers, arguing that consumer spending is holding up well against the fallout of corporate accounting scandals and weakness in the stock market.

But the slowdown in sales compared with last month is "an indication that retail sales in July will be a little bit softer than they were in June," Sharp said.

The BTM/UBSW Weekly Chain Store Sales Snapshot is compiled from seven major discount, department and chain stores across the country that report their weekly results. They include J.C. Penney Co. Inc., Sears , Target Corp. , Kmart Corp. , Wal-Mart Stores Inc. , Federated Department Stores Inc. and May Department Stores Co.

The Redbook Retail Sales Average, released weekly by Instinet Research, is a sales-weighted average of annual growth in same-store sales at discount, department and chain stores.