'Clunkers' stimulus drives US retail sales up 2.7 pct

The "Cash for Clunkers" government program helped to drive US retail sales up 2.7 percent in August, Commerce Department data showed Tuesday, but the outlook remains muted with the stimulus ended.

The August spike was the steepest since January 2006 and was far stronger than the 1.9 percent rise expected by most analysts.

The jump followed a revised 0.2 percent decline in July, the Commerce Department said, worse than the initial estimate of a 0.1 percent drop.

"Retail sales were surprisingly strong in August. It is not clear, however, that this implies any more underlying strength in consumer spending," said Scott Hoyt at Moody's Economy.com.

"The strength came in three areas: autos, gasoline stations, and back-to-school categories. Auto sales were expected to be strong because of the surge in unit sales generated by the 'Cash for Clunkers incentive. That program has ended, and sales will fall back sharply in coming months."

On an annual basis, sales remained 5.3 percent below the August 2008 level as Americans hunkered down amid a 26-year high in unemployment in the painful recession that began in December 2007.

Spending was broad-based, with sales declines posted only in building materials and garden supplies, and furniture and home furnishings.

For a sustainable recovery, the private sector must take over from government stimulus efforts, he said, and the report "provides the first bit of evidence that may indeed be happening."

Brian Bethune, chief US financial economist at IHS Global Insight, noted the government's various fiscal stimulus measures were playing pivotal role in jump-starting the economy in the third quarter of 2009.

"That should create enough initial momentum to keep the recovery in motion, but we should not be looking for consumer spending to be a major driver of the recovery beyond the current quarter," he said.

Robust auto sales led the gain, soaring 10.6 percent jump from July, the biggest rise since October 2001, as car owners swapped old vehicles for new, more fuel-efficient models to take advantage of the government's wildly popular scrappage rebate program that ended in late August.

Excluding auto sales, retail sales rose 1.1 percent in August, stronger than the average consensus forecast of 0.4 percent.

Stripping out auto and gasoline sales, so-called "core" retail sales rebounded in August, rising 0.6 percent after falling 0.4 percent in July.

"This was a stronger than expected report because the jump in spending came not just from government-hyped motor vehicle sales but also from people buying lots of other goods," said Joel Naroff of Naroff Economic Advisors.

The monthly retail sales data signal the direction of consumer spending, which accounts for roughly two-thirds of output in the world's largest economy and is considered a key element in a sustainable recovery.

Ian Shepherdson, chief US economist at High Frequency Economics, said the outlook remains clouded.

"Clearly, welcome news but we need more data to see if this is sustainable or just noise," he said. "The income and credit constraints on consumers remain intense."