Retail Sales Increase Is Stronger Than Expected

Energized by warm weather and favorable incentives, shoppers splurged on cars, clothes and appliances last month, boosting retail sales by 1.1%.

With consumers playing a key role in the shape of the economic recovery, the Commerce Department’s stronger-than-expected sales figures for June offered a dose of good news Friday.

But economists worry that the accounting scandals that have shaken confidence in corporate America, the sour stock market and a sluggish job market could chill consumers’ willingness to spend in the months ahead, further slowing the economic recovery.

The recovery has lost momentum from the beginning of the year.

Business, whose profits took a hit during last year’s recession, continues to be reluctant to invest in equipment and hire new employees, necessary ingredients for restoring the economy to robust health.

“It’s clear that corporations have not been able to accept the baton from consumers to continue the expansion relay,” said Carl Tannenbaum, chief economist at LaSalle Bank. “Consumers are being relied on more and more to extend their support for the recovery. But I wonder how long they can do that.”

A preliminary report Friday from the University of Michigan fanned those concerns, Tannenbaum said. The report’s preliminary index of consumer sentiment sank to 86.5 in July, down from 92.4 in June and the lowest level since November 2001.

However, skittishness about the economy didn’t stop consumers from hitting the malls and auto dealers in June. Some economists said shoppers couldn’t resist good deals offered by companies to bolster lackluster sales.

Excluding cars, overall retail sales rose by 0.4% in June--largely in line with analysts’ expectations.

Unlike some of his colleagues, economist Richard Yamarone of Argus Research Corp. said he was confident that consumers will continue to power the recovery. “If consumers were so worried, they would not have spent at such elevated levels,” he said.

Consumers took a breather in May and sent retail sales down by 1.1%. But in June, more aggressive incentives helped bring Americans back to automobile showrooms, pushing up sales by 3.4%. That was the largest increase since October, when car sales shot up by a record 22.6%.