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Retail sales unexpectedly drop in August

Frugal shoppers cut back again in August, driving down sales at the nation’s retailers for the second month in a row, further proof the economy is losing traction.
/ Source: The Associated Press

Frugal shoppers cut back again in August, driving down sales at the nation’s retailers for the second month in a row, further proof the economy is losing traction.

The Commerce Department reported Friday that retail sales dropped by 0.3 percent last month. Economists expected sales to rise by 0.3 percent.

Sales in July also turned out to be even weaker than previously thought, falling by 0.5 percent, the worst showing in five months.

Rising unemployment, strained household budgets and falling home prices — which make homeowners feel less wealthy — are making shoppers more cautious.

Stripping out auto sales, which were strong in August, sales at all other merchants fell by 0.7 percent, the worst showing since December. That figure also was sure to disappoint economists, who were calling for a smaller, 0.2 percent dip.

Cutbacks were widespread.

Sales fell at electronics and appliance stores, clothing shops, building and garden stores, and department stores. Gasoline sales also dipped as prices retreated. Sales at furniture and home furnishing stores were flat. Those losses swamped gains elsewhere, including auto dealers, sporting goods, books and music stores, grocery stores and health and beauty shops.

Removing sales at gasoline stations, all other sales would have been flat in August.

Last week, many stores reported weak sales for August. The few bright spots: Wal-Mart Stores Inc., the world’s largest retailer, and Costco Wholesale Corp., where shoppers focused on low prices.

Even the recent drop in gasoline prices, which reached a record high in mid-July of above $4 a gallon, didn’t entice shoppers to splurge last month. Prices still remain high and costs for many other things are going up, taking a bite out of paychecks.

Separately, wholesale prices — for goods before they reach store shelves — dropped 0.9 percent in August, the most in nearly two years, as energy prices retreated, the Labor Department reported.

Many analysts predict shoppers will lose steam in the months ahead, slowing overall economic activity.

Economic growth clocked in at a brisk 3.3 percent pace in the spring, thanks to strong exports and more spending at home as the government’s tax rebates motivated shoppers. However, growth in the current July-September quarter could slow to a 1.3 percent pace, according to some projections.

A growing number of analysts think the economy will actually shrink in the final three months of this year and possibly in the first three months of 2009.

One reason for the dour outlook is the deteriorating employment climate. The jobless rate in August jumped to 6.1 percent, a five-year high, and employers have cut jobs every month so far this year.

Even against the gloomy backdrop, the Federal Reserve is expected to remain on the sidelines next week and hold a key rate steady at 2 percent. The Fed in June halted its most aggressive rate-cutting campaign in decades to shore up the economy out of concern that the low rates would aggravate inflation.

With the economy weak and some inflation barometers — like Friday’s wholesale price report — showing improvement, the Fed is expected to leave rates where they are through the rest of the year.