US retail sales fall unexpectedly despite cash-for-clunkers offer

Fall in sales indicate recovery may be more unsteady than feared

In a disappointment for the Obama administration's efforts to push the US economy back to recovery, the $3bn (£1.8bn) "cash-for-clunkers" scheme appears to have stimulated retail sales far less than expected.

Auto sales only rose by 2.4 per cent in July, as American consumers still nervous about jobs and, in many cases, unable to find the finance for their new cars, left the scheme unexploited, though it has been popular and the initial $1bn ran out last month, Congress having approved an emergency top up of $2bn.

What was still more damaging for the future prospects of the US economy was that sales at US shops, malls and other retail channels fell unexpectedly last month, and by so much that the small positive effect of the US car scrappage scheme was more than cancelled out. An overall 0.1 per cent decline in sales, the first fall in three months, reinforced fears that the US recovery may be more unsteady than hoped. The US Federal Reserve said earlier this week that the US economy had "flattened out", a view undermined by the latest news. Retail Purchases excluding cars fell by 0.6 per cent on the month, again by more than forecasts. Consumption comprises around 70 per cent to of the US economy – and is around 16 per cent of the global economy.

Paul Dales, of Capital Economics, commented: "There is no upward momentum in sales at all and suggests that falling employment, slowing wage growth and limited access to credit are taking their toll on spending. Overall, the retail sales data support our view that households are in no position to drive a decent economic recovery."

Consumer spending, which accounts for 70 per cent of the economy, is projected to grow at an average 1.6 per cent pace through the first half of 2010, ending its worst slump since 1980, according to a poll of economists by Bloomberg. Purchases rose at an average 3.5 percent pace in the decade before the current recession began in December 2007.

If joblessness is holding back consumer spending, then the US Labor Department had further bad news yesterday. Delivering the weekly jobless claims figures, officials said that 558,000 people filed first-time claims for jobless benefits last week, up from 554,000 the week before. The American economy has shed almost 7 million jobs in the recession.

Yet a further significant drag on the US economy does show signs of drawing to close. The savage destocking that has decimated order books seems set to end soon, with the tenth successive monthly drop in inventories reported yesterday, a 1.1 per cent drop on sales that the value of stockpiles down to $1.35 trillion, the lowest level in three years. Observers hope that it may not take much longer to bring sales and stock levels back into equilibrium, prompting a revival in orders.

Earlier this week the Federal Reserve Open Markets Committee said that they would maintain their benchmark rate at an "exceptionally low" level for an "extended period" to help foster a recovery.