WRAPUP 4-Autos, gasoline drag US retail sales lower in June

* Retail sales fall for second straight month

* Sales ex-autos slip 0.1 percent, “core” sales up

* Business inventories edge up in May
(Adds details Fed minutes, updates markets)

By Lucia Mutikani

WASHINGTON, July 14 (BestGrowthStock) – Sales at U.S. retailers
fell for a second straight month in June and businesses wary of
ebbing demand barely raised inventories in May, more evidence
the economic recovery has slowed in recent months.

Retail sales slipped 0.5 percent last month, pulled down by
weak receipts at automotive dealers and gasoline stations, the
Commerce Department said on Wednesday. The decline outstripped
the 0.2 percent fall economists had expected and followed a 1.1
percent drop in May.

The data comes on the heels of an unexpectedly wider trade
deficit in May and prompted economists to trim growth forecasts
for the second quarter.

In addition, Federal Reserve policy makers felt they should
be ready to consider additional steps to boost the economy
should the outlook worsen, according to minutes of the Fed’s
June 22-23 meeting released on Wednesday. Fed officials trimmed
their outlook for economic growth this year.[ID:N14148574]

“Activity at the end of the quarter was much weaker than at
the start,” said Paul Dales, a U.S. economist at Capital
Economics in Toronto. “It has therefore become much more likely
that private sector demand will not be able to offset the
fading fiscal stimulus.”

The back-to-back declines in retail sales followed seven
straight months of gains that had been helped by government
incentives.

The retail sales was the latest in a series of weak data —
from home sales to factory activity to hiring — that suggest
the recovery from the most severe recession since the 1930s is
softening a bit earlier than economists had expected.

With demand sluggish and inflation pressures muted, the
Federal Reserve is seen holding benchmark interest rates near
zero into next year, a Reuters survey on Wednesday showed.
[ID:nLAG006343].

The data and the Fed’s revisons to growth weighed on Wall
Street. Major stock indexes were lower in afternoon trade.
Prices for U.S. government debt rallied as investors sought
safe havens, while the dollar pared losses against the euro.

Despite the moderation in the recovery’s pace, some
economists argued fears the economy could slip back in
recession are overdone.

“We don’t think the recovery itself is in jeopardy. The
fundamentals are in place. We have been adding private jobs on
a pretty consistent basis,” said Scott Hoyt, a senior director
of consumer economics at Moody’s Economy.com in West Chester,
Pennsylvania.

CONSUMER SPENDING LOSING STEAM

After strong gains in the first quarter, consumer spending
is losing steam as households grapple with a 9.5 percent
unemployment rate and sluggish income growth. In June, earnings
slipped as employers trimmed working hours.

Slackening demand may already be making businesses wary of
building inventories, an exercise that has been largely behind
the economic recovery that started in the second half of 2009.

Business inventories barely rose in May as sales fell for
the first time since March 2009. [ID:nN14128297]

The sluggish recovery and high unemployment have become a
headache for President Barack Obama and his fellow Democrats on
Capitol Hill, who face a struggle to maintain majorities in the
House of Representatives and Senate in November elections.

Republicans charge that Obama’s efforts to stimulate the
economy have failed, while the White House argued on Wednesday
that the $862 billion stimulus plan it backed had saved or
created 3 millions jobs. [ID:nN14180700]

The U.S. Chamber of Commerce on Wednesday credited the
administration with helping to stabilize the economy, but said
it had also created an environment of regulatory uncertainty
that was restraining business activity. [ID:nN14271758]

Last month, motor vehicle and parts purchases dropped 2.3
percent. Excluding autos, retail sales dipped 0.1 percent last
month after dropping 1.2 percent in May.

Although the report showed weakness in some key categories,
“core” retail sales, which exclude autos, gasoline and building
materials, rose 0.2 percent after slipping 0.1 percent in May.

Core sales correspond most closely with the consumer
spending component of the government’s gross domestic product
report. But given that core sales for April and May were
revised down, analysts lowered their expectations for consumer
spending growth in the second quarter.

Consumer spending, which normally accounts for about 70
percent of U.S. economic activity, grew at a 3 percent annual
rate in the first quarter, while the broader economy expanded
at a 2.7 percent pace.

Last month, receipts at gasoline stations fell 2 percent
after dropping 2.5 percent in May on lower prices.

Declining energy costs handed import prices their biggest
decline in June in nearly 1-1/2 years, a separate report from
the Labor Department showed. The weak energy costs and general
price declines have some economists worried the economy could
be flirting with deflation.

Sales of building materials and garden equipment fell 1.0
percent last month, extending the prior month’s 9 percent drop,
consistent with a recent decline in home construction.

The housing market distress was also highlighted by a fall
in the demand for home purchase loans to a 13-year low last
week. Refinancing demand also slid despite near record-low
mortgage rates, the Mortgage Bankers Association said.
[ID:nNLLDIE694]

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Graphic on US retail sales:

http://link.reuters.com/bef57m

Graphic on US home mortgage data:

http://link.reuters.com/veb47m

Graphic on U.S. import prices

http://link.reuters.com/sug57m

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(Additional reporting by Doug Palmer in Washington; Editing by
Leslie Adler)

WRAPUP 4-Autos, gasoline drag US retail sales lower in June