US consumers still cautious despite boost for new car sales

GLOBAL ECONOMIC TRENDS:US CONSUMERS resisted purchases of discretionary items in July and steered their spending towards cars and petrol, reinforcing concerns that shoppers remain reluctant amid a sluggish economic recovery.

For the first time in three months, retail sales rose, boosted by a revived car sector, commerce department figures showed yesterday. Separate reports showed energy prices fuelling the first rise in the cost of living since March and a modest brightening in consumer sentiment.

Retail sales climbed by 0.4 per cent from June to July – slightly lower than Wall Street analysts’ expectations – and left sales up 5.5 per cent from the same month a year ago.

The increase in July was driven by a 1.6 per cent jump in car sales and a 2.3 per cent rise in sales at petrol stations. But shoppers spent less on clothing, sporting goods, electronics and furniture, and sales excluding cars and petrol were off by 0.1 per cent.

“The details proved weaker than the headline numbers suggested, with US data continuing to reflect slowing growth conditions amidst high unemployment and low consumer confidence,” said Michael Woolfolk, strategist at BNY Mellon.

Consumer confidence remains depressed but did manage to stage a small recovery in early August, with sentiment ticking up ahead of the crucial back-to-school shopping season.

The mixed sales performance in July was foreshadowed last week by US retailers, who reported subdued consumer demand in spite of more aggressive discounting and promotions.

However, car-makers such as General Motors and Ford helped lift new car sales to their highest level this year as drivers with fresh access to credit abandoned their old vehicles for new models.

Meanwhile, the consumer price index rose by 0.3 per cent in July. This was the first increase in the past four months, leaving prices up 1.2 per cent year-on-year, and was largely the result of rising energy prices and increases in prices of cars, clothes and rent.

The labour department noted that rents were starting to rise in the northeast, as vacancy rates fell and homeowners with negative equity shifted from houses to apartments.

Still, inflation remained mostly muted in July. The closely watched core CPI, which factors out volatile price swings in food and energy, rose by a tepid 0.1 per cent last month and has risen by just 0.9 per cent in the last year.– (Copyright The Financial Times Limited 2010)