Retail Sales, Confidence Pressured by Energy Costs

Surging energy prices helped set back U.S. retail sales in June and consumer sentiment in July, reports showed Friday, raising prospects that the Federal Reserve may be close to halting its campaign of hiking interest rates.

The University of Michigan’s preliminary reading on consumer sentiment in July was a surprisingly weak 83, down from June’s final 84.9 reading, said sources who saw the subscription-only report. The median forecast of Wall Street economists polled by Reuters was 85.5.

This data, coupled with news from the Commerce Department that June retail sales eased 0.1% -- the first decline since February -- raised concerns of an economic slowdown.

Economists had forecast a gain of 0.4%. Consumer spending accounts for about two-thirds of U.S. economic activity, but in recent years confidence measures have been an unreliable guide to actual spending.

“Given the news of late and with what oil prices have been doing, you might have expected it to be worse and there might be some relief it isn’t,” said Jim Paulsen, strategist for Wells Capital Management in Minneapolis. “Expectations might be even weaker in the next report.”

He said the data supported the idea that the Fed might raise rates only once more or pause.

The Fed has raised rates in 17 consecutive quarter-percentage-point steps to 5.25% and has left the door open to further moves, depending on the outlook for growth and inflation.

The University of Michigan survey’s index of current conditions slipped to 100.8 in July from 105 in June, while consumer expectations declined to 71.6 from 72 in June.

In July’s survey, consumers expected more muted inflation ahead, the report said, according to the sources. The University of Michigan’s preliminary July reading of one-year U.S. inflation expectations was 3.1%, down from 3.3% in June.

The Commerce Department said sales at gasoline stations climbed 1.1% in June after a 1.9% gain in May, as rising oil prices continued to inflate costs at the pump. Gas station sales were up 20.4% from June 2005.

When gas sales were stripped out, retail sales fell 0.2%. Retail sales excluding motor vehicles and parts advanced 0.3% compared with an upwardly revised 0.7% increase in May, previously reported as a 0.5% gain. Analysts had forecast an increase of 0.4% in June.

Sales of motor vehicles and parts dropped 1.4%. When cars, parts and gasoline were excluded, retail sales edged up 0.1%.