U.S. retail sales pause, seen rebounding in months ahead

Wed Aug 13, 2014 12:55pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. retail sales unexpectedly stalled in July, pointing to some loss of momentum in the economy early in the third quarter.

But with job growth holding sturdy, sales activity was likely to rebound in the coming months, economists said.

The Commerce Department said on Wednesday that retail sales, which had increased 0.2 percent in June, were in part held back by a second straight month of declines in receipts at auto dealers. July's reading was the weakest since January.

"Given the strong gains in labor market activity, along with other indications of strengthening domestic growth momentum, we expect this slowdown to be short-lived and we look for consumer spending to rebound strongly in the coming months," said Millan Mulraine, deputy chief economist at TD Securities in New York.

Economists had forecast sales, which account for a third of consumer spending, increasing 0.2 percent last month.

The economy has experienced six consecutive months of job growth above 200,000. Layoffs and job openings are back to their pre-recession levels. Data on manufacturing and services sectors have suggested the economy was growing solidly.

Still, the pause in retail sales could give the Federal Reserve ammunition to maintain its very easy monetary policy stance for a while. The U.S. central bank has kept its benchmark overnight interest rate near zero since December 2008.

"It will provide Fed Chair Janet Yellen with some of the rationale she needs to justify why the Fed should move gradually and keep interest rates low for longer than hawks within the Fed would like," said Diane Swonk, chief economist at Mesirow Financial in Chicago.   Continued...

Shoppers ride escalators at the Beverly Center mall in Los Angeles, California November 8, 2013. REUTERS/David McNew