Consumers Lift Retail Sales, Factory Orders

The nation’s largest retailers posted strong sales gains in July and orders for factory goods unexpectedly rose in June, signs consumer spending will push growth higher in coming months.

“Consumers are happy, they’re buoyant, they’ve got the income and they’re spending, and they’re getting the prices they want,” said Joel Naroff, chief bank economist at First Union Corp. in Philadelphia.

July sales at retail stores open at least a year were 5.52% higher than in July a year ago, according to the Bloomberg composite same-store index. That’s a bit larger than June’s 5.44% increase, though down from April and May.

Strong demand for clothing, summer goods, furniture and appliances paced the increase. Wal-Mart Stores’ same-store sales rose 7.1% last month. Gap continued the double-digit sales gains it’s had since the start of the year with a better-than-expected 19% rise in July. The retailers’ unexpectedly good performance is significant at a time when the economy is supposed to be slowing. “There’s a distinct chance that we will see more strength than we expect” this year, Federal Reserve Board Gov. Edward Kelley said. “Demand seems to be holding up very strongly.”

Factory orders reflected that demand. Excluding aircraft, autos and other transportation-related goods, orders rose 1.1% in June, the fourth increase in five months. Orders for clothing and other nondurable goods were up 0.3%.

Overall orders rose 0.1%, even as orders slowed at Boeing and No. 1 auto maker General Motors was shut down by strikes. Factory orders totaled a seasonally adjusted $330.5 billion in June, up from $330.2 billion, the Commerce Department said.

The overall increase surprised analysts, who had expected a 0.1% decline. Orders fell 2.2% in May.

Retailers’ stocks surged. The Standard & Poor’s index of retail specialty stores gained 70 points, reversing a recent decline. For the year, it has gained about 27%.

Even with Thursday’s area of strength, the Dow has lost 8% of its value since reaching a high of 9,337.97 on July 17. That’s the one black cloud on the consumer horizon, analysts said, because the rise in stocks over the past couple of years has helped fuel spending.

Still, the “wealth effect” isn’t too fragile, Naroff said. “Even if the market stays flat, you’ll only see a softening of consumption to a sustainable level of 2.5% to 3%, which as far as the Fed is concerned is nirvana,” he said.

A reason for that is jobs are still easy to get. The Labor Department reported that the number of workers filing for state unemployment benefits last week rose a less-than-expected 6,000 to a seasonally adjusted 307,000 for the week ended Aug. 1. The four-week moving average for jobless claims fell to a seasonally adjusted 315,500 last week from 337,250 the week before.

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Factory Orders

New orders, in billions of dollars, seasonally adjusted:

June: $330.5

Source: Commerce Department