Retail sales drop despite ‘cash for clunkers’

Retail sales in July dropped by 0.1 percent despite the initiation of the “cash for clunkers” program, suggesting consumers are focused more on saving than shopping.

The Commerce Department said retail sales were down 0.1 percent from the previous month and 8.3 percent from July 2008. Auto sales helped; they were up 2.4 percent from the previous month.

But that covered up weaker sales across the rest of the economy. Excluding autos, retail sales were down 0.6 percent.

Commerce Secretary Gary Locke insisted that despite the drop in retail sales, the $787 billion economic stimulus package is helping the economy.

“Despite the slight decline in retail sales, we remain encouraged that the Recovery Act and other economic initiatives have stabilized conditions and helped those harmed by the economic crisis,” he said in a statement.

He insisted stimulus dollars had boosted disposable income in the first half of the year, signaling a bottoming out of the recession. “The road to recovery is long, but with every Recovery dollar we spend and project we start, we are one step closer to getting there,” Locke said.

The administration received a shot in the arm last week from a better-than-expected jobs report that found the nation’s unemployment rate had actually dropped a tenth of a point to 9.4 percent.

But the retail sales numbers for July were a disappointment. Many economists had expected retail sales to show an increase last month given the popular auto program, as well as some positive economic indicators.

Much of the drop in retail sales from a year ago was driven by lower gasoline sales, which were impacted by this summer’s lower prices. Commerce reported that gasoline sales were down 32 percent this July from a year ago.

Cash for clunkers, which gives consumers subsidies of up to $4,500 to trade in gas guzzlers for more fuel-efficient vehicles, was initiated only at the end of July, meaning it could have a more positive impact on economic numbers in August.

The program, originally funded with $1 billion, was about to run out of cash less than a week after it was initiated before the House and Senate passed legislation before the August recess adding an additional $2 billion to its coffers.

Ford announced Thursday it is expanding its production this fall to meet increased demand because of cash for clunkers.

The company, which has seen increased sales of its Ford Focus since the program was initiated in July, will bump its North American production up by 10,000 units in the third quarter. That’s 18 percent higher than the third quarter a year ago.

Ford also said it plans to produce 570,000 vehicles in the fourth quarter, a 33 percent increase from a year ago and a 15 percent increase from its planned third-quarter production.

The plans will lead to increased hours for workers at Ford plants. For example, employees at the Kansas City (Mo.) assembly plant will work the Aug. 21-22 weekend, when the plant was supposed to be in a shutdown.

The National Highway Traffic Safety Administration reported last week that more than 273,000 vehicles had been moved under cash for clunkers so far.