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Slow June sales reflect economy

By ASSOCIATED PRESS
Published July 7, 2006

NEW YORK - Retail sales growth stalled in June, leaving merchants wondering whether shoppers who were resilient for much of the year are now curbing their spending because of higher gas prices.

As the nation's retailers reported their monthly sales Thursday, disappointments included Wal-Mart Stores Inc., Federated Department Stores Inc. and Limited Brands Inc. There were also the usual laggards - Gap Inc. and Pier 1 Imports Inc., which again suffered sales drops. Winners included Target Corp., J.C. Penney Co. Inc. and AnnTaylor Corp.

"It's a mixed bag, but it is definitely slower," said Jharonne Martis, an analyst at Thomson Financial. "Consumers' discretionary spending is decreasing as the economy is slowing down."

The International Council of Shopping Centers-UBS sales tally of 54 stores rose 2.6 percent in June, the low end of the projected 2.5 to 3 percent range. The tally is based on same-store sales, or sales at stores opened at least a year. Same-store sales are considered a key measure of a retailer's health.

June's results were below the 4.1 percent gain averaged in the first five months of the calendar year.

June, the second most important month of the year in a retailer's calendar behind December, is the period when merchants start to clear out summer goods to make room for fall merchandise.

Stores had some big challenges last month. Rainy weather, particularly in the Northeast, made selling summer clothes difficult. Results were also hurt by comparisons with June 2005, when the same-store sales tally rose a robust 5.2 percent, helped by warm weather.

But analysts worry that consumers are starting to feel the effects of increasing economic pressures including higher gasoline prices and interest rates. Higher rates have also helped cool the housing market. Last week, the Federal Reserve raised short-term rates to the highest point in more than five years but also lifted hopes that a respite from two years of increases might be in the offing.

Stores have feared a slowdown in consumer spending in the second half, but the question is how deep and when will it start.

Wal-Mart, whose low-income customer is most vulnerable to higher energy costs, has said it started feeling the pain from the pump earlier this spring. In June, the world's largest retailer reported a same-store sales increase of 1.2 percent, below the estimates of analysts surveyed by Thomson Financial; they predicted a gain of 2 percent.

[Last modified July 7, 2006, 01:10:09]