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Housing slump hampers shoppers

Keta Guerrero, a Lady Grace Intimate Apparel saleswoman, arranged swimwear yesterday at its store in Brookline. Last month, retail sales fell 0.9 percent, the most in almost two years. Keta Guerrero, a Lady Grace Intimate Apparel saleswoman, arranged swimwear yesterday at its store in Brookline. Last month, retail sales fell 0.9 percent, the most in almost two years. (michael fein/bloomberg news)

NEW YORK -- American shoppers took a breather last month as the worst housing recession in 16 years eroded demand for building materials, appliances, and furniture.

The 0.9 percent drop in retail sales, the most in almost two years, followed a revised 1.5 percent increase in May, the Commerce Department said yesterday in Washington. Sales, excluding automobiles, fell 0.4 percent, the most since September.

The sales figures reflected the slump in housing. Stores selling building materials and garden supplies showed a 2.3 percent decrease in sales, sales of electronics and appliances dropped 1.4 percent, and furniture purchases fell 3 percent. The drop in furniture sales was the biggest since February 2003.

A separate Labor Department number showed the price of imported goods rose for a fifth month on higher fuel costs.

Another report showed confidence among Americans rose more than expected this month, indicating the drop in sales may be temporary.

While consumer spending is wilting amid the housing slump, economists say, job growth and gains in exports and manufacturing are limiting the damage.

"The consumer is taking a pause here," said Brian Bethune, an economist at Global Insight Inc. in Lexington, Mass. "There will definitely be a measured slowdown in spending, but it won't collapse. The job market will be key in keeping the lights on."

Bethune's forecast of a 0.3 percent drop in retail sales was more pessimistic than the median estimate among economists of a 0.1 percent decline. Retail sales account for almost half of all spending.

"Consumers are going to bend, but not break," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa., a unit of Moody's Investors Service, one of the world's two biggest debt-rating firms.

The Reuters/University of Michigan's preliminary index of consumer sentiment rose to 92.4 this month from 85.3 in June, which was the lowest in 10 months.

The reading compares with an average of 88.6 in the 12 months through June.

The 1.0 percent increase in the import price index, which was bigger than forecast, followed a 1.1 percent gain in May, the Labor Department reported yesterday. Prices excluding petroleum rose 0.2 percent after climbing 0.5 percent.

The increase reflects near-record fuel costs, faster growth abroad, and a weaker dollar, developments that make it more likely US companies will raise prices, economists said.

Federal Reserve Bank of Philadelphia president Charles Plosser said this week that an expected slowing in inflation is "far from a certainty."

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