July 14, 2007	Saturday	Jamadi-us-Sani 28, 1428

WASHINGTON, July 13: US retail sales -- a crucial driver of economic growth -- fell by the biggest margin in almost two years in June as American consumers cut their spending amid a persistent housing slump, the government said on Friday.

The Commerce Department’s monthly report showed that June retail sales declined an unexpected 0.9 per cent, defying most economists’ predictions that sales would remain unchanged.

“Consumers pulled back sharply on purchases in response to higher gasoline prices and continued problems in the housing market,” said Brian Bethune, an economist at Global Insight.

Stripping out vehicle sales from the June report, retail sales dropped 0.4 per cent. Most analysts had expected sales excluding autos to rise 0.2 per cent.

The Dow Jones Industrial Average stock barometer fell in the wake of the report’s release after soaring to a record close on Thursday, but then regained strength as investors cheered a better than expected survey on consumer sentiment.

The surprise decline in retail sales, the sharpest since August 2005, is likely to disappoint the Federal Reserve which is banking on improved economic performance after US growth slowed to 0.7 per cent in the first three months of 2007.

Wall Street follows retail sales closely because consumer spending accounts for some two-thirds of all US economic growth.

A sustained decline in retail sales and consumer activity could dent growth in the world’s biggest economy going forward.

The Fed has kept its key short-term fed funds interest rate anchored at 5.25 per cent for a year as it focused on warding off inflationary pressures.

May’s retail sales were revised to reflect a slightly improved picture, however, as the government said it had lifted that month’s retail sales to a rise of 1.5 per cent from an original estimate of 1.4 per cent.

But analysts said American consumers clearly lost some of their spending appetite last month.

“June retail sales were bad. I mean really bad,” said Joel Naroff of Naroff Economic Advisors.

“Consumer spending is at issue and it is not clear how it will hold up.

Vehicle and appliance sales kept first-quarter growth from being negative and they are fading,” Naroff observed.

The latest retail sales snapshot revealed that vehicle and part sales across the country fell 2.9 per cent in June after rising 1.1 per cent in May.

The declines across other industries were also fairly broad-based, including some sectors that traditionally benefit from warmer summer temperatures.

Service station sales fell 1.1 per cent last month, amid strong spikes in gasoline costs, after rising 4.1 per cent in the prior month.

Building materials and garden equipment companies saw their sales drop 2.3 per cent compared with a 4.7 per cent gain in May.

Clothing store sales tumbled 1.4 per cent after rising 2.5 per cent in May while restaurant and cafe turnover managed only a slim 0.1 per cent gain in June following a 0.6 per cent rise in the prior month.

The fall in overall sales also caught analysts off guard as the world’s largest retailer, Wal-Mart Stores, had announced better than expected US June sales a day earlier.

Analysts cautioned that the Fed would likely await further updates in coming months as the latest figures represent just a single month’s activity.

“The Fed is on hold and these softer June retail sales numbers do not alter their wait-and-see policy position. There was little reason to expect any changes in policy in coming months and the Fed will continue to watch the economy and inflation unfold,” said Stephen Gallagher, an economist at Societe Generale.

Over the past 12 months, overall retail sales to June are up 3.8 per cent, or 4.2 per cent excluding the auto sector.—AFP