WASHINGTON -- Retail sales rebounded in June after two weak months as consumers stepped up purchases of most types of items including autos and other durable goods, the government reported yesterday.
Analysts predicted more gains in the coming months thanks to strong growth in employment and household income.
"Retail sales will continue growing moderately, but we're not on the verge of another spending spree like the one we saw at the end of last year and the beginning of this year," said Darwin Beck, director of the economics department at CS First Boston Corp.
The Commerce Department reported that retail spending grew 0.6% on a seasonally adjusted basis in June, and excluding autos, sales gained 0.4% in the final month of the second quarter. Total sales fell a revised 0.4% in May, following a previously reported drop of 0.2%, and declined 1% in April.
Economists said retail sales in the current third quarter are expected to post monthly gains averaging around 0.5%. The increases would be stronger than the second quarter, when monthly sales fell an average of 0.3%, and slightly weaker than the first quarter, when sales gained an average 0.8% each month.
With the economy steaming toward full employment and full capacity, analysts said they were encouraged that consumer spending was likely to strengthen after a weak second quarter -- but not too much.
"This report indicates that consumer spending has slowed to a more moderate rate of growth," said Mark Zandi, chief economist of Regional Financial Associates in West Chester, Pa. "The goods news is that the economy will slow to a rate of growth more compatible with continued low inflation."
Yesterday's report indicated that sales of most types of products rebounded in June.
After falling 1.1% in May, durable goods sales gained 0.8% in June, fueled by a 1.3% increase in auto sales and a 2.7% advance in building materials. Sales of nondurable goods grew 0.5% following a 0.1% gain in May. Department store sales were up 1.8%, the report showed.
The latest report did not prompt economists to change their growth estimates for the second quarter. The economy grew at a 3.4% annualized rate in the first quarter and analysts are predicting about the same rate of growth in the second quarter, although a few forecasts run higher.
Economists said the growth in the economy is being driven by production, not spending. Many analysts predicted an inventory buildup will help sustain growth in the second quarter.
"Inventory growth will fill in a lot of that missing GDP in the second quarter," said Russell Sheldon, senior economist of Mellon Bank in Pittsburgh. "That should not necessarily be viewed as undesirable." He said that the economy is strong, and businesses are trying to keep enough products on their shelves.
For example, a dearth of cars on showroom floors is one reason why auto sales softened in the second quarter, analysts said. But that is unlikely to happen this quarter, they said.
Auto sales were extremely strong in the first few months of the year despite bad weather. Sales then cooled in the second quarter. Economists were divided regarding whether auto sales would resume their upward climb or had reached a plateau.
"I would expect car sales to improve in the third quarter," said Henry Willmore, an economist at Chase Manhattan Bank.
Willmore and several other economists predicted that consumer spending in general will rebound in the current quarter. But he and others do not anticipate a repeat of the buying explosion that took place around the end of last year, when the economy grew at a whopping 7% rate.
The big stimulants to household spending, including refinanced mortgages and lower interest rates, are mostly past and now spending is being driven essentially by job and income growth, they said.
