Big Demand for Vehicles Helps Lift Overall Retail Sales by 1.8% in July

U.S. retail sales jumped 1.8% last month as buyer incentives led to the biggest gain in auto sales since just after the terrorist attacks in 2001, a government report showed Thursday.

Rising gasoline prices also added to the overall sales gain, which economists said underscored the economy’s vigor even though it fell short of Wall Street forecasts.

Other reports also showed strength, with a key gauge on the pace of layoffs dropping last week to its lowest level since late February and business inventories seeing record lows in June.

July’s retail sales jump followed a similarly healthy 1.7% rise in June, the Commerce Department said, but fell short of forecasts for a 2.2% rise. Excluding autos, sales rose a modest 0.3%, also below forecasts.

Economists said the retail report put an exclamation mark on a string of data showing the economy moving ahead rapidly.

“The consumer is still in there slugging away,” said Ken Mayland, president of ClearView Economics in Pepper Pike, Ohio. “There is no reason to think the consumer is going to pull back into some shell and go away.”

Auto sales shot up 6.7% last month as Ford Motor Co. and DaimlerChrysler joined General Motors Corp. in extending employee discounts to all consumers. It was the biggest gain since carmakers put in place no-interest financing deals in October 2001.

Gasoline station sales rose 2.4%, reflecting higher prices at the pump. The average U.S. retail gasoline price hit $2.33 a gallon in early July, a record high that was broken last week.

Excluding autos and gasoline, retail sales would have been unchanged in July.

Sales at electronics, health and sporting goods stores moved higher. But the report showed a sharp 1.3% drop in furniture sales after a 2.2% jump in June and a 0.4% decline in building material sales.

The Commerce Department said overall inventories at the nation’s retailers, wholesalers and manufacturers held steady in June as sales rose 0.7% from May.

At retailers, however, inventories dropped 0.4% as auto dealers cut their bloated stocks by 2.4%.

The overall strong sales performance in June pushed the inventories-to-sales ratio -- a measure of the number of months it would take to deplete stocks at the current sales pace -- to a record low 1.29.

“This reinforces our view that firms have gotten to an inventory stance that is sufficiently lean,” said Stephen Stanley, chief economist at RBS Greenwich Capital. He said businesses now would let inventories rise in step with sales, adding substantially to economic growth.

Separately, the Labor Department said the ranks of Americans filing initial claims for state unemployment benefits thinned by 6,000 last week to 308,000.

The drop, which defied Wall Street expectations of a rise to 315,000, brought the less volatile four-week moving average of claims -- a closely watched barometer of the pace of layoffs -- down to 309,250, its lowest level since late February.