Retail Probably Rose, Factory Slump Eased: U.S. Economy Preview

July 12 (Bloomberg) -- Retail sales in the U.S. probably increased in June for a second straight month and factory production fell at a slower pace as the recession abated, economists said before reports this week.

Sales gained 0.4 percent after a 0.5 percent increase in May, according to the median estimate in a Bloomberg News survey before the Commerce Department’s report on July 14. The next day, Federal Reserve figures may show industrial output fell 0.6 percent last month after a 1.1 percent drop in May.

Consumers are venturing back into stores, seeking discounts and favoring necessities such as food or fuel. Even as the projected increase in sales and reports this week on housing may show the worst of the downturn has passed, a turnaround is likely to be gradual.

“The spending is more on staples than discretionary purchases,” Tom Porcelli, a senior economist at RBC Capital Markets in New York, said last week. “Aggregate demand is still amazingly weak. Things aren’t falling apart, but don’t expect a robust recovery.”

An index consumer confidence dropped last week on concerns about job losses, sending stocks lower. The Standard & Poor’s 500 Index closed at 879.13 in New York on July 10, down 0.4 percent from the previous day, capping its fourth straight weekly loss. The Dow Jones Industrial Average closed down 0.5 percent to 8146.52.

Car Sales

Car dealers struggled last month, as sales dropped to a 9.7 million annual pace from a 9.9 million rate in May, according to data from Woodcliff Lake, New Jersey-based Autodata Corp.

Sales plunged 42 percent from a year earlier at Auburn Hills, Michigan-based Chrysler Group LLC, and dropped 34 percent at General Motors Corp., located in Detroit. The carmakers, two of the three biggest in the U.S., are restructuring through bankruptcy.

Excluding automobiles, retail sales probably rose 0.5 percent in June, matching the gain in the prior month, according to the Bloomberg survey.

The Commerce report may also show receipts at service stations climbed, in part because of higher fuel prices. Regular unleaded gasoline averaged $2.64 a gallon at the pump in June, up 35 cents from the prior month, according to AAA.

Oil costs also will be reflected in June price reports due from the Labor Department. An index of producer prices, to be released on July 14, and a gauge of consumer prices, due the next day, may show bigger gains compared with May, the survey showed. Excluding food and energy, inflation remains contained, economists said.

Bargain Hunters

Bargain-conscious consumers drove sales gains at chains that sell discounted goods, reports showed last week, including Framingham, Massachusetts-based TJX Cos., owner of T.J. Maxx stores, and Pleasanton, California-based Ross Stores Inc., owner of the Ross Dress for Less chain.

Sales declined more than analysts forecast at San Francisco-based Gap Inc., operator of the Old Navy and Banana Republic chains, and Abercrombie & Fitch Co., a teen-clothing retailer based in New Albany, Ohio.

The International Council of Shopping Centers, which said June retail sales fell by 5.1 percent based on 32 chains, predicted July results may show as much as a 5 percent drop.

“Tough times certainly will linger for most, even through the summer,” Mike Niemira, the New York-based trade group’s chief economist, said in a July 9 telephone interview.

Meanwhile, one area of the economy showing signs of bottoming out is housing.

Housing, Construction

A Commerce Department report due July 17 may show builders broke ground on houses at a 528,000 annual rate in June, after a 532,000 pace the prior month and compared with a record-low 454,000 in April, according to the survey median.

Building permits, which point to future construction, likely rose.

The deterioration in industrial production may ease as companies, which have been slashing output to get rid of excess inventories, make progress in bringing stockpiles closer to demand. Still, the report may also show capacity utilization continued to decline, economists said.

Regional Fed reports from the New York and Philadelphia areas may add to evidence the manufacturing slump is waning, economists said. The reports are due on July 15 and 16.

On July 15, Fed policy makers will release minutes from their two-day meeting in June which will likely contain their most recent forecasts for growth, inflation and unemployment, plus officials’ discussion of monetary policy.