Watch CBSN Live

Latest retail sales numbers better than they look

WASHINGTON - U.S. retail sales rose less quickly than expected last month, but forecasters think the economy continues to rebound from a dismal first quarter.

Retail sales rose just 0.2 percent last month, the Commerce Department said Tuesday, held back by a sharp drop at building materials and garden supply stores. Sales also fell at restaurants and at auto dealers. The figures suggest that Americans are reluctant to spend freely, which could slow growth in the April-June quarter.

Although retail spending was softer than initially forecast, Paul Ashworth, chief U.S. economist with Capital Economics, said the numbers bode well for the rest of the year. So-called core sales -- which exclude highly variable vehicle, gas and building material sales -- grew a healthy 0.5 percent in June, he said in a research note.

Is America in a "retail funk?"

Retail sales are closely watched because consumer spending accounts for 70 percent of the economy.

Ian Shepherdson, chief economist with Pantheon Macroeconomics, said the trend in core sales is solid, growing at a year-over-year rate of 4.2 percent in the second quarter. But stronger spending growth will require faster wage gains, he noted. Wages are growing at a modest 2 percent, or only slightly above the rate of inflation.

Clothing stores, sporting goods stores and department stores all recorded sales gains. And a category that includes online and catalog retailers jumped 0.9 percent in June and has increased 8.1 percent in the past 12 months. That's nearly double the 4.3 percent growth in overall retail sales in the past year.

By contrast, sales at auto dealers fell 0.3 percent, which contradicts strong data released by the automakers themselves earlier this month. The automakers had said sales reached an eight-year high in June. The two sets of data can sometimes conflict on a month-to-month basis.

Have other retailers felt a pinch in sales?

Retail sales were revised higher in May to 0.5 percent from 0.3 percent, and in April to 0.6 percent from 0.5 percent.

The economy shrank 2.9 percent at an annual rate in the first three months of the year, largely because of cold weather. Many economists have already cut their forecasts for the second quarter because they don't expect consumers to spend at a healthy pace.

According to a survey by the National Association for Business Economics, analysts now forecast growth of 3 percent at an annual rate. That's down from a forecast of 3.5 percent a month earlier. The economists surveyed expect consumer spending will grow at a 2.3 percent pace in the April-June quarter, down from their June forecast of 2.9 percent.