Retail Sales Fall 1.1 Percent in June

WASHINGTON – America's shoppers had a tight grip on their pocketbooks and wallets in June, dropping sales at the nation's retailers by 1.1 percent. It was the largest decline in 16 months.

The buying retreat, reported Wednesday by the Commerce Department (search), came after shoppers had splurged in May. In that month, they pushed merchants' sales up by a strong 1.4 percent, a showing that was even better than first estimated a month ago.

Bad weather and higher energy prices were blamed for the pullback, economists say. Another possible factor: a slowdown in the growth of the nation's payrolls in June. The economy added a net 112,000 jobs last month, less than half of the amount that economists had forecast.

The 1.1 percent drop in retail sales was the largest since February 2003, when sales fell by the same amount. June's decline was shaper than the 0.7 percent drop that some economists were predicting.

The falloff was led by a sharp 4.3 percent decrease in sales at automobile dealerships, which enjoyed a sizable 3.2 percent gain in sales during May.

Excluding sales of automobiles, all other sales dipped by 0.2 percent in June, compared with a 0.9 percent rise in May. The modest 0.2 percent drop in overall sales, excluding autos, matched economists' expectations.

Sales at clothing stores, department stores, food and beverage stores, gasoline stations and bars and restaurants all showed declines in June.

However, sales of furniture, electronics and appliances, building and garden supplies, health and beauty products, and sporting goods, books and music all showed gains.

Wednesday's report offered a mixed picture about consumers' appetite to spend.

Shoppers play an important role in shaping the economy because their spending accounts for roughly two-thirds of all economic activity.

Economists are hopeful that a slowdown in consumer spending will be more than offset by stronger investment by business as well as better activity from other parts of the economy, thus keeping economic growth on a solid path.

Federal Reserve Chairman Alan Greenspan (search) and his colleagues believed the economy was in sufficient shape to embark on their first credit-tightening campaign in four years. The Fed on June 30 boosted a key short-term rate to 1.25 percent, from a 46-year low of 1 percent, in an effort to prevent the expanding economy to ignite inflation.