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Retail sales rev up in June
Increase 1.7 percent, trumping Wall Street's estimates; automobile and clothing sales strong.
July 14, 2005: 9:28 AM EDT

NEW YORK (CNN/Money) - Retail sales, pumped up by a spike in purchases of new cars, clothing and other summer merchandise, rebounded strongly in June, a government report showed Thursday.

The Department of Commerce report said overall sales jumped 1.7 percent last month, compared to a revised 0.3 percent decrease in May. The initial reading for May showed a 0.5 percent decline.

Analysts said the stronger than expected reading allayed fears for the time being that higher gas prices were negatively impacting consumer spending.

Economists surveyed by Briefing.com had forecast retail sales would rise 0.9 percent in June.

Excluding auto sales, retail sales rose 0.7 percent, compared to a revised flat reading in May. Ex-auto sales were initially reported to have slipped 0.2 percent in May.

Economists, on average, had expected ex-auto sales to rise 0.5 percent last month.

Buying strength was spread across the board, led by a surge in car sales as car buyers rushed to take advantage of employee discount incentives offered by carmakers.

Auto sales surged 4.8 percent in June, compared to a 1.3 percent decline in the prior month. Sales at gasoline pumps rose 1.9 percent.

Clothing sales rose one percent after a 0.9 percent drop in May. Department stores saw a 1.3 percent jump, while general merchandise retailers logged a 1.2 increase.

Sales of furniture and home furnishings rose 0.9 percent.

"The clear message seems to be that while oil is a drag, it's not a downward driver of consumer spending," said Jim O'Sullivan, U.S. economist for UBS. "The labor market is generating good income in general and the housing market continues to deliver a positive wealth effect. These factors are helping to offset the impact of higher oil prices."

Michael Niemira, chief economist and director of research with the International Council of Shopping Centers (ICSC), agreed with O'Sullivan.

"I think we are positioned for good overall consumer demand this year," Niemira said, pointing out that chain store sales hit a 13-month high despite the burden of price hikes at the pump.

At the same time, Niemira said he's carefully watching whether or not higher costs of fuel and other energy begin to weigh on the middle-income consumers.

"So far it's been the lower-income consumers trimming their discretionary spending," Niemira said. "However, a recent survey we did indicated that the gas and energy cost concerns may be moving up the income strata. That's something to watch out for."  Top of page

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