By  on September 12, 2008

WASHINGTON — Sales at specialty apparel retailers fell 0.3 percent in August compared with July, and department store sales declined 1.5 percent, the biggest drop since April 2007, U.S. Commerce Department reported Friday.

Compared with a year earlier, specialty store sales increased 1.2 percent to $19.09 billion, as department store receipts declined 4.2 percent to $16.84 billion.

Overall retail and food service providers reported a seasonally adjusted decrease in retail sales of 0.3 percent to $381.2 billion in August, after declining 0.5 percent in July. August sales were 1.6 percent above the same period last year.

Sales in several important channels fell in August, including clothing, electronics and building materials, said Brian Bethune, chief U.S. financial economist at Global Insight.

“Without the props from the fiscal stimulus rebates, consumer spending is slowly caving in,” said Bethune, adding that in the wake of the summer tax rebates, retail sales were hit by a “hangover.”

The department store results in August raised a red flag, said Richard Yamarone, chief economist at Argus Research Corp. It is hard to tell whether consumers weren’t shopping or if heavy discounting affected the numbers, Yamarone said.

Plus, it is still possible that apparel sales could benefit from some late season sales of back-to-school items by students who waited to see what the trends were before going into the stores, Yamarone said.

Meanwhile, a secondary report released Friday, the September University of Michigan Consumer Sentiment Index, provided a potential bright spot for the month. The index improved to 73.1 from 63 in August, its best reading since January. Despite the retrenching demonstrated in the retail sales data, falling gas prices appear to have made consumers less pessimistic.

There have been contradictory economic studies in the last month. Some improvement was reported in new and existing home sales and industrial production, among other indicators, Yamarone said.

“With the exception of labor market data, the tone of the economic releases has been largely positive, not so much as to knock the cover off the ball, but certainly not the end of the game either,” Yamarone said.

However, experts remain cautious. The August results extended the period of weak retail sales to nine months, despite the rebates, said Charles McMillion, president and chief economist at MBG Information Services.

“The broad weakness in retail sales in August continues the nongas pattern of the past nine months, with modest strength limited to essentials of groceries and health care as severely debt-strapped households, with virtually no current savings for four years, face stagnant or declining real incomes and worsening conditions,” McMillion said.

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