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Tuesday, 14 August, 2001, 16:00 GMT 17:00 UK
US retail figures beat forecasts
Young shoppers in New York
American consumers are still spending, albeit selectively
In a sign of lingering strength in the slowing US economy, retail sales figures for July came in ahead of expectations.

Retail sales for the month showed zero growth, or a 0.2% increase once the automotive sector was stripped out, cheering analysts who had forecast a modest month-on-month fall.

And the main depressing effect on retail sales came from a big drop in spending on petrol, which masked strong growth in key consumer sectors such as clothes and healthcare.

Coupled with relatively strong results from some of the country's biggest retailers, also released on Tuesday, the figures show that consumer confidence is still helping balance out weakness in manufacturing.

Excluding petrol, retail sales were up 0.3% during the month.

"This is consistent with the view that the US economy really is on the road to recovery," said Bill Cheney, chief economist of John Hancock Financial Services.

"Consumer spending is going to get us into a second half 2001 rebound."

Modest good cheer

The figures did little to move Wall Street sentiment, with the Dow Jones industrial average 15 points higher at 10,431 by noon (1600 GMT) and the tech-heavy Nasdaq index unchanged on the day at 1,983.

Perceptions of a resilient - if not exactly buoyant - consumer market were underlined by a string of modestly positive reports from US retailers.

A Walmart store
The world's biggest retailer is enjoying modest growth

Walmart, the world's biggest retailer, met expectations with its second-quarter results, unveiling profits growth of only 2%, but a strong 14.5% annual increase in group sales.

The firm warned, however, that the outlook for the third quarter was shaky, and profits growth might not be maintained.

Home Depot, the world's biggest home-improvement retailer, announced results slightly above target.

Like Walmart, it also reported double-digit sales growth for the second quarter.

Long hot summer

Most analysts expect the retail market to sag slightly during the later summer months.

The latest issue of the Redbook Retail Sales Average, which tracks sales at discount, chain and department stores week by week, showed only very sluggish growth during the first retail week of August.

That finding was backed up by a similar chain-store survey from Bank of Tokyo-Mitsubishi and UBS Warburg.

The retail sales figures did nothing to shake the consensus that the US Federal Reserve will further cut interest rates when it meets next week.

A stronger sales-growth figure might have made a rate cut less likely, since strong retail sales generally presage inflation.

But economists say the July figure will allow the Fed to cut rates, for the seventh time this year, to help diminish the spectre of a US recession.

US rates stand at 3.75%, having started the year at 6.5%.


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