Retail Sales Drop 0.3 Percent in August

WASHINGTON – Shoppers turned tightfisted in August, dropping sales at the nation's retailers by 0.3 percent, providing fresh evidence of an erratic pace of consumer spending (search) in recent months.

The decline in sales reported by the Commerce Department (search) on Tuesday came after shoppers pushed sales up by a solid 0.8 percent in July as consumers' willingness to spend revived after a June lull.

The decline in August was the largest since June's 0.7 percent drop in retail sales (search).

Much of the weakness in August was due to a decline in sales of automobiles. However, excluding sales of cars, which can swing widely from month to month, sales by all other merchants rose by 0.2 percent in August.

That matched analysts' expectations, while the decline in overall retail sales was slightly larger than the 0.1 percent dip that some analysts' were forecasting.

Separately, the deficit in the broadest measure of trade swelled to a record high of $166.2 billion in the second quarter of this year, up from a $147.2 billion deficit registered in the first quarter, the department said in a second report.

The latest economic reports come with Election Day less than two months away. President Bush and his Democratic rival, John Kerry, have sparred frequently about the economy, trade issues and the availability of jobs.

On the retail front, economists closely watch consumers' behavior because their spending accounts for roughly two-thirds of all economic activity in the United States.

Federal Reserve Chairman Alan Greenspan, appearing before Congress last week, largely blamed high energy prices for a slowdown in consumer spending in the late spring and early summer. Although consumer spending in July bounced back, early readings on retail sales in August have been mixed, he said.

The outlook for oil prices, Greenspan added, remains uncertain.

Still, Fed policy-makers are widely expected to stick to their gradual approach to raising short-term interest rates and boost them for a third time this year when they meet next week. That would raise a key rate controlled by the Fed to 1.75 percent, from the current 1.50 percent. Analysts say that short-term rates are still quite low by historical standards and that they need to go up in part so that they don't sow the seeds of unwanted inflation down the road.

Some economists believe the buying retreat seen in August reflects not only the lingering impact of high energy prices, which have left people with less money to spend on other goods, but also a labor market that is recovering slowly and bad weather in some parts of the country.

In August, sales of automobiles and parts declined by 1.9 percent, following a 2.2 percent increase in July. Sales at furniture, clothing and department stores each posted declines in August from the previous month. Sales at bars and restaurants also fell.

But sales at building and garden supply shops, electronics and appliance stores, sporting goods, books and music stores, health and beauty shops, and gasoline stations all registered gains in August.

On the trade front, the record $166.2 billion "current account" deficit set in the second quarter, surpassed the previous all-time high of $147.2 billion in first quarter of this year.

The current accounts report is considered the best measure of a country's international economic standing because it tracks not just the goods and services reflected in the government's monthly trade reports but also investment flows between countries and unilateral transfers, including U.S. foreign aid payments.

The latest snapshot of trade activity was slightly worse than economists were expecting. They were forecasting the second-quarter current account trade deficit at around $158.7 billion.

Bush says the best way to handle yawning trade deficits is to get other countries to remove trade barriers and open their markets to U.S. companies. But Kerry points to the deficits as evidence that the president's free-trade policies aren't working and have contributed to job losses.