Shoppers picked up clothes and electronics last month, but they curbed their spending on housewares and stuck to the sales racks -- signals that the consumer recovery continues in fits and starts.

The Commerce Department's retail and food services sales tally for June rose to $360.2 billion, up 4.8% from June 2009 but down 0.5% from May of this year. Excluding auto sales, totals were up 4.4% from the year-ago month and retail sales were up 5%.

Auto sales were down 2.5% month over month, and gas stations were down 2%, contributing to the drag on the total numbers. The Commerce Department's tally is the most complete picture of retail. It includes gas, food and auto sales, as well as the results of Wal-Mart stores (WMT), the world's largest retailer, which doesn't publicly report monthly sales.

All segments of retail showed increases year-over-year, except for department stores, which were down 0.3% from June 2009. But many sectors seemed to lose sales momentum, showing lower sales than the past month.

"Part of a Cyclical Recovery"


"All in all, the numbers aren't horrible," says Jamie Cox, Managing Partner of Harris Financial Group in Colonial Heights, Va. Automakers have held down production in anticipation of the arrival of 2011 models in August, so "you're going to see some lumpiness in that data," Cox says. Taking out the auto and gas sales, retail receipts were within the consensus estimates.

"What they suggest is this is a part of a cyclical recovery where you will have a pause every now and then," he notes. Overall, the trend is toward rising sales, says Cox.

Indeed, some other retail sectors showed a continued recovery. Electronics and appliance stores, which had been hurt by dropping prices on big-screen TVs and laptops, were up 1.3% in June over May and showed a healthy 7.3% increase year-over-year.

Promotions Still Key


Clothing stores, which are headed toward a key back-to-school shopping season, were up 0.6% over May and 5.7% over the past year. When studying last week's retailer sales reports, several analysts noted the merchants have stepped up their promotional activity to clear out spring merchandise in anticipation of larger inventories during the second half of the year.

Weakness in furniture (down 1.1% from May) hints at uncertain consumers and weak credit and housing markets, Brian Sozzi, retail analyst at Wall Street Strategies, wrote in a note to clients. But on the flip side, he noted there was momentum in some sectors of discretionary spending such as department stores -- up 1.1% from May -- and electronics.

Shoppers are taking a moment to review their finances, Sozzi wrote. He noted there was solid mall traffic in June, but consumers still need to be enticed with promotions.

"We're in a deleveraging process," says Cox. "Consumers and government have to be very selective in how they spend their budgets."

Retailers also have deleveraged enough that all they need to show profits is a small sales increase, not the blowout numbers they were posting before the recession. "They've cleaned up their balance sheets and operations so that every dollar of sales drops into the bottom line," Cox says.

What About the Third Quarter?


But "retailers are now in a pickle, having bought into the consumer recovery and increased inventory levels to support the hypothetical demand," Sozzi noted. That could hurt profit margins in the third quarter, he warned.

As the second-quarter earnings season gets underway, investors will have some questions for retailers regarding sales trends and inventories for the third quarter to gauge if the back-to-school season signals a solid recovery or another turn in the cycle.

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