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U.S. July Small-Business Optimism Index Drops – NFIB

August 16, 2012

Dow Jones/WWD Articles

Dow Jones
By Kathleen Madigan
August 14, 2012

To beat the heat, U.S. shoppers sought the air-conditioned comfort of malls, auto dealers and big box stores. It’s not a sure bet that the urge to shop will continue throughout the second half.

July retail sales increased a larger-than-expected 0.8% for the top-line number and when autos are excluded. All the subcategories posted gains, with furniture stores, drug stores, nonstore retailers and building-material suppliers seeing receipts jump 1% or more.


Core retail sales–which exclude vehicles, building materials and gasoline sales–rose a solid 0.9% last month. The Bureau of Economic Analysis uses core sales in its gross domestic product calculation. Depending on price changes, consumer shopping started the third quarter growing at a modest annual rate between 1.5% and 1.9%.

But consumer circumstances have changed a bit since July.

First, gasoline prices are rising again. The U.S. average price of a gallon jumped more than 20 cents in the first two weeks in August. Higher fuel costs could explain why weekly store reports show mixed results on back-to-school shopping so far in August.

In addition, the drought is raising fears about future food inflation. This month’s consumer survey done by the Royal Bank of Canada found a significant rise in the number of people expecting major increases in food prices in August compared with July. Higher prices at the grocers will squeeze household budgets.

As always, the key to keeping consumers in a shopping mood will be job and income growth.

But economists aren’t expecting an acceleration in hiring. The Federal Reserve Bank of Philadelphia’s third-quarter survey of professional forecasters showed economists think job growth will average 130,000 per month for the rest of the year. That’s down from the 171,000 pace expected in the second-quarter survey and the 150,000 monthly average in new jobs in the first half.

Even so, a survey released Tuesday by nonbank lender Capital Business Credit shows some optimism among consumer-goods suppliers about holiday sales.

The CBC survey of retail manufacturers and importers found 33% of respondents indicated an uptick in orders compared with 2011 levels, and only 22% reported decreased bookings.

The survey also found 43% thought holiday sales will be stronger this year, a sizable gain from the 27% who believed that in 2011. The results are important as most retailers have already ordered their holiday inventory from U.S. and foreign producers.

Now retailers need shoppers to fill the aisles and pay at the register.