WASHINGTON – America's shoppers threw caution to the wind and splurged in July on cars, appliances and clothes, catapulting sales at the nation's retailers by 1.4 percent, the biggest increase in four months.
The sizable gain in retail sales reported by the Commerce Department (search) Wednesday showed that consumers have been opening their wallets and purses wider since April, when retail sales (search) fell by 0.3 percent. That steady improvement is good news for the nation's budding economic recovery.
In May, retail sales went up by a solid 0.5 percent, followed by an even stronger 0.9 percent increase in June. July's performance, the best showing since March, beat analysts' expectations. They were forecasting a 1 percent rise in sales.
Consumers, whose spending accounts for two-thirds of all economic activity in the United States, are the main force keeping the economy going. Their willingness to spend will play a crucial role in determining how vigorous the anticipated economic rebound in the second half of this year will be, economists say.
Some economists believe that fatter paychecks and other incentives coming from President's Bush's third tax cut left people with extra money to spend and contributed to the rise in retail sales in July.
The encouraging news on retail sales comes amid other signs that the economy is gaining traction after months of wobbling.
Against that backdrop, the Federal Reserve (search) on Tuesday decided to hold a key short-term interest rate at a 45-year low of 1 percent and hinted it may stay there for some time.
Near rock-bottom short-term interest rates, along with President Bush's third round of tax cuts, should motivate consumers and businesses to spend and invest more, economists said. That's a factor in economists' forecasts for an economic rebound in the second half of this year. Some economists are calling for the economy to grow at an annual rate of 3.5 percent to 4 percent or more during that period.
Even if that turns out to be the case, though, the job market is likely to remain lackluster, economists said. The nation's unemployment rate dipped to 6.2 percent in July, mainly because many people dropped out of the civilian labor force. For the sixth month in a row, the economy lost jobs.
Economists believe the jobless rate could creep higher in coming months because job growth probably won't be strong enough to handle an expected influx of jobseekers coming back into the market amid an improved economic climate.
Wednesday's retail sales report suggested that consumers' appetite to spend was hardy, with many types of merchants registering gains.
Sales by automobiles dealerships rose by 3.2 percent in July, up from a 0.4 percent increase in June. Auto makers have been offering free-financing and other incentives to bolster sales.
At electronics and appliance stores, sales went up by 1.2 percent, twice as fast as June's 0.6 percent increase. Sales of building and garden supplies rose 1.3 percent in July, on top of a 2.5 percent gain. Furniture and home furnishing sales went up 0.5 percent, following a 1.3 percent rise.
Clothing stores saw sales go up 0.8 percent in July, after a 1 percent gain. Health and beauty store sales rose 1 percent, following a 1.3 percent increase.
At department stores, sales rose 1 percent, a big improvement over June's 0.3 percent increase. Last week, the nation's largest retailers reported strong sales for July, helped out by war weather and heavy discounting.
Sales at bars and restaurants rose 0.9 percent in July, up from a 0.4 percent gain. At gasoline stations, sales rose 1.6 percent, up from 1 percent in June.
Retail sales, excluding both automobiles and gasoline sales, which can swing from month to month, went up a solid 0.7 percent in July.