Retail Sales Rallied in August

U.S. retail sales rose 2.7 percent in July, driven largely by automotive sales but reflecting gains in general merchandise and food service sales as well, the Commerce Department announced today.

Automotive and parts sales shot up 10.6 percent in August, as buyers took advantage of the short-lived "Cash for Clunkers" program to trade in their old cars for new vehicles. Even with the temporary boost, auto sales remained 1.0 percent below their August 2008 level.

Excluding motor vehicle sales, general retail sales increased 1.1 percent for the month, after four straight quarterly declines. The increases surpassed the expectations of economists, who had predicted an overall increase of 2.0 percent in all retail sales activity.

The results were seen by many as a hopeful sign that the economy is turning around. Retail sales make up about two-thirds of the gross domestic product (GDP), considered the main indicator of economic activity.

Sales increased in 11 of 13 categories tracked by the Commerce Department. Somewhat surprisingly, the two areas that showed declines were furniture sales (down 1.6 percent) and building equipment/garden supplies (down 1.2 percent), despite recent increases in home sales, which typically spur activity in those sectors.

The August increase in general sales may in part be driven by back-to-school shopping and fall wardrobe purchases, which commonly give a boost to sales at this time of year. Retail clothing sales were up 2.4 percent for the month.

Gasoline sales were also up, by 5.1 percent, reflecting in part increased prices but also likely due to annual August vacation travel.

Overall retail sales activity was down 5.3 percent from the August 2008 level. Retail sales were down even further for the summer as a whole, posting a 7.6 percent decline from the June-August quarter last year.