Auto sales boost otherwise weak retail sector

Aug 13th, 2010 | By admin | Category: Featured

Summer promotions and easier credit lured shoppers back to car buying last month. Nissan, Toyota, Volkswagen, Subaru and Kia reported the biggest gains. The industry sold more than 1 million cars and light trucks. That’s 5.1 percent higher than in July 2009. Last year auto sales fell to the lowest level in three decades.

Major department store chains reported solid second-quarter earnings this week. But executives see economic uncertainty in the months ahead.

J.C. Penney Co. slashed its earnings forecast for the year, an ominous sign for the economy. The company caters to middle-class consumers and therefore serves as a key barometer of consumer spending.

“Consumer constriction of credit, the job loss situation and the protracted housing situation has had the biggest impact of the middle-income consumer,” said Myron Ullman III, chairman and CEO.

Ullman noted Penney executives had met with suppliers in Asia a few weeks ago, and what they’ve seen across the board is caution in terms of future inventories.

“So I think it’s prudent for us to also be cautious,” he added.

Macy’s boosted its net income outlook and increased its forecast for a key revenue measure on Wednesday. But that was only because it’s confident that it is taking market share from rivals.

Economists will be studying earnings reports from Wal-Mart Stores Inc., the world’s largest retailer, and Target Corp. to get an even better read of consumers’ financial health. Both report next week.

In the July retail sales report, sales at gasoline stations rose 2.3 percent in July, the biggest jump since last November. But much of that strength reflected higher prices.

Prices are rising at the slowest pace in 44 years, well below the Federal Reserve’s inflation target. Core prices moved up 0.9 percent in the past year for the fourth month in a row.

July’s modest increase in consumer prices may quiet deflation concerns raised in recent weeks by some Federal Reserve officials. Deflation is a widespread and prolonged drop in the price of goods, real estate and stocks. It also reduces wages and can make it harder to pay off debts.

The last serious case of deflation in the U.S. was during the Great Depression. Most economists don’t believe deflation will happen. But they are watching consumer prices closely for any signs of it.

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AP Retail Writer Anne D’Innocenzio in New York contributed to this report.

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