Auto Discounts Drove US Retail Sales Increase in July

15 August 2005

The US Commerce Department reported Friday that US retail sales grew 1.8% in July - although growth would have stagnated had it not been for massive discounting by US car manufacturers which pushed up auto dealers' sales by 6.7%.

With a little help from its friends in Detroit, the US retail sector achieved its best performance in three months and the best one-month increase since October 2001 when sales went into freefall after the September 11 terrorist attacks.

But when the auto industry's contribution is factored-out, the retail sector grew by just 0.3% - roughly half the gain predicted by an analysts' consensus. Apparel, furniture and building materials all suffered a drop in sales income.

According to the Wall Street Journal, the haruspex caucus is divided as to the significance of the July numbers.

Stephen Stanley, an analysts at RBS Greenwich Capital took a glum view: "While all of these categories had solid gains (and in some cases spectacular increases) in June," he said, "it is fair to say that this release is the first in a while to show less economic activity than expected."

Others were in cheerier mode. "We have just come off a spending binge," said Michael Strauss, chief economist at Commonfund. "If the consumers were in trouble, they wouldn't be buying cars. You can't be in two places at once."

Some analysts, however, are encouraged by the broader economic picture, with the WSJ's poll of economists upping their Q3 estimates for GDP growth to 4.2% - materially better than the 3.5% they predicted in June..

Data sourced from Wall Street Journal Online; additional content by WARC staff