US retail sales dragged down by auto sales

WASHINGTON — US retail sales saw their biggest decline of the year in September as auto sales were dented by the end of government trade-in incentives, official data showed Wednesday.

Sales fell 1.5 percent following a revised 2.2 percent jump in August. The figure was not as weak as a 2.1 percent drop expected by most analysts.

The September contraction, the biggest since December 2008, was attributed to tumbling auto sales after the government ended a rebate program in which car owners swapped old vehicles for new, more fuel-efficient models.

Auto sales fell dramatically by 10.4 percent, reflecting the end in August of the "cash-for-clunkers" program.

But retail sales excluding autos were surprisingly strong, however, up 0.5 percent in September and comfortably higher than expectations of a 0.2 percent rise in core sales, the Commerce Department said.

Analysts said the report was mostly optimistic but wondered whether sales growth -- a key to recovery from recession -- can be sustained.

"Despite the large top-line sales decline, this was a strong retail sales report," said Scott Hoyt, senior director of consumer economics for Moody's Economy.com, pointing out that "very few" segments reported sales declines.

"This suggests that consumers are becoming more optimistic about economic conditions," he said, hastening to add however that the positive numbers may be difficult to sustain.

Hoyt said consumers remained financially constrained and lack the cash to spend aggressively, citing general wage incomes, which were not growing appreciably although declines have ended, and wealth levels that were substantially below previous levels even as equity and house prices rose.

"While sales are up, there is limited confidence that consumers can sustain this pace without jobs," said Stephen Gallagher of Societe Generale.

The US unemployment rate is approaching 10 percent even though data indicated the economy was poised for growth in the third quarter after nearly two years of recession.

"We view the retail sales and consumer data as encouraging and believe that faced with this private demand, order and production increases require employment increases," Gallagher said.

Employment gains are not expected until early 2010.

Some analysts believe the largely positive retail picture can help in US recovery from recession.

Patrick O'Hare of Briefing.com pointed to core retail sales, which excludes autos, gasoline sales, and building materials, which were up 0.5 percent, based on the governmment data.

"That marked the second straight increase for this series, which is noteworthy given that it factors into economists' GDP (gross domestic product) assumptions," he said.

Then US economy is expected by many analysts to chalk up its first growth rate -- of about three percent -- in the third quarter after a year of contractions.

But with credit still tight and consumer caution lingering, US retailers are bracing for a difficult period as the year end holiday shopping season approaches.

Many early projections suggests retail spending in the final two months of 2009 -- a season that accounts for a large proportion of sales and profits -- will be flat or lower