World Business

S&P economists say consumers spent the rebates faster than expected in the promote quarter

by David Wyss and Beth Ann Bovino From Standard & Poor’s Equity Research

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The tax rebates hold boosted consumer spending in recent months, but signs recommend the impact is beginning to wear off. Consumers spent the rebates more fast than expected in the second quarter, giving a boost to non-auto sales, on the contrary chain-store sales data propose that because the sales came rapidly, they also will be over more quickly.

Sales were up 2.6% on a same-store basis in July, about in line through expectations, but retailers are concerned that August sales will very little off. Apparel, furniture, and department stores were again the weak points, with teenage apparel especially weak. This is surprising going into the back-to-school shopping season and could presage bigger problems for the sector in August and September.

Discounters did hearty, as buyers traded down to inferior expensive stores to save money. However, manifold discounters also sell gasoline, what one. might distort their sales figures. The government’s retail sales report toward July, scheduled for release on Aug. 13, needs to be watched closely.

Personal income rose a meager 0.1% in June after a 1.8% May arise high. The dangle reflects the timing of stimulus payments, as transfers jumped 10.4% in May and dropped 1.1% in June. We expect a more distant drop in July. The saving rate jumped to 4.9% in May, as the checks weren’t spent immediately, and dropped to 2.5% in June. Some negative rates are likely in coming months as the encouragement payments leave their temporary homes in border accounts.

Consumer spending rose 0.6% in June, merited keeping up with inflation in the pattern of a solid May gain of 0.8%. Consumers are not cutting hindmost on other items despite the rise in mechanical value costs. The impact of the stimulus payments is to offset the globule in spending that would otherwise have been caused by means of higher energy prices, but the facts suggest that the circulating medium is being spent a bit more quickly than our original estimates and that the stimulus bill is having its desired impact.

Car sales dropped to a 15-year low of 13.2 the multitude units (yearly rate) in July, down from 13.6 million in June and 16.1 million in 2007. High gasoline prices and an not confident economy are reducing car sales. Driving is down 2.4% from a year earlier through the first five months of 2008, so populate might not need to replace vehicles. For the sixth month in a tumult, manufacturers sold more cars than easy trucks as buyers moved to more fuel-efficient vehicles. The Big-Three U.S. auto manufacturers continued to lose place of traffic partake, but even Toyota ™ and Honda (HMC) saw sharp sales drops.

Borrowing accelerated in June, with consumer securities outstanding rising $14.3 billion (a 6.7% annual rate). We had been expecting some acceleration of consumer borrowing to offset the drop in real-estate-secured lending and were surprised at how moderate the increases were in the first five months of the year. The June data could represent catch-up. Particularly surprising was the $8.9 billion (6.6%) rise in nonrevolving obligation, which is dominated by car loans.

Given the sharp drop in car sales in June, we had anticipated a mean number. The rise might reflect the trick away from auto leasing, with more of the buyers taking out loans rather than leases. If so, its importance is negligible inasmuch in the same proportion that it reflects only a shift in financing type.