Retail Sales Post Better-Than-Expected Gain in June

Sales at U.S. retailers posted a healthy gain in June, the government said on Tuesday, lifting hopes for an acceleration in economic growth in the second half of the year from the current sluggish pace.

The Commerce Department (search) said retail sales grew by 0.5 percent to $310.42 billion in June after being flat in May. It was the strongest gain since March. June sales excluding motor vehicles were up a stronger 0.7 percent after rising 0.1 percent in May.

Shoppers snapped up a variety of goods in June, with sales of furniture up 0.5 percent and purchases of sporting and hobby goods up 3.0 percent, their strongest gain since February 2001. Auto sales, however, were reported down 0.1 percent, likely reflecting increased discounting and incentives by offered by automakers.

The numbers were close to Wall Street expectations, which were for a retail sales gain of 0.5 percent overall, and a rise of 0.4 percent excluding autos. Analysts expect U.S. consumer spending (search) to be supported ahead by continued low interest rates and a boost to paychecks from tax cuts in an economic stimulus package passed by Congress in May.

Market reaction to the news was mixed. Yields on 10-year Treasury notes (search) ticked up initially as prices for the securities moved lower, but the dollar got a bit of a boost in foreign exchange markets.

"It is not a blowout number, but it is encouraging to see relatively broad-based increases. Some of it is weather related, but there is a better pattern of underlying strength than we were expecting," said Dana Johnson, head of research and managing director with Banc One Capital Markets in Chicago.

The economy grew at a sluggish 1.4 percent in the first quarter of the year and analysts expect only a slight pickup when second quarter growth figures are released later this month.

The tepid pace led the Federal Reserve (search) to cut interest rates at its meeting in June and helped propel a $350 billion economic stimulus package through Congress in May. The Bush administration is set later this month to start mailing about 25.4 million checks worth about $13 billion to middle-class families with children as part of an expanded child income tax credit in that package.

Within the Commerce report, sales excluding purchases at car dealerships and gasoline stations, which can fluctuate due to price changes, were up 0.7 percent in the month, after a 0.6 percent gain in May.

The only major retail categories to post sales declines in the month were electronics and appliances, which were down 0.1 percent; sales at restaurants and bars, which fell 0.2 percent; and miscellaneous retailers, which saw sales drop by 1.3 percent.