Retail Sales Down as Unemployment Rises and Home Values Decline

By Jason Simpkins
Associate Editor

Retail sales fell 0.1% in July, as home values declined, unemployment rose, and consumers cut back on big-ticket spending.

The decline was the first drop in five months and followed a 0.3% up-tick in June, the Commerce Department reported yesterday (Wednesday). Sales at dealerships and parts stores were at the forefront of losses dropping 2.4%. Excluding automobiles, retail sales rose 0.4%.

Automobile sales have been steadily worn down over the past year by the steep escalation in gas prices. Americans drove 12.2 billion fewer miles, or 4.7% less, than they did in June 2007, the Department of Transportation reported yesterday. U.S. driving levels have dropped in every month since November of last year.

With government stimulus checks wearing thin, many analysts are wondering what will be left to prop up consumer spending in the latter part of the year.

“There’s less employment, there’s less wealth, and now banks are restraining credit,” Drew Matus, senior economist at Merrill Lynch & Co. Inc. (MER) said before the report. “We just don’t see where the consumer is going to get the money.”

Unemployment in the United States hit 5.7% in July - the highest level in four years. The number of U.S. workers filing new claims for unemployment benefits rose to a six-year high in the week ended August 2.

Worse, out-of-work Americans are underwater on their mortgages, and many are being forced to sell their homes for less than they paid. In the 12 months ended June 30, almost 25% of all homes sold brought in less than sellers originally paid, reported. Nearly a third of all homeowners who bought since 2003 owe more on their mortgages than their homes are worth.

"It's stunning what's happening out there," Stan Humphries, Zillow's vice president of data and analytics, told CNNMoney. "The numbers are the worst we've seen and it's not just the magnitude of the problem but the scope - so many markets are affected."

“With more than $3.9 million unsold homes on the market, prices will have to come down even more before the market stabilizes,” Humphries added.

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