Consumers remain cautious despite sales jump

WASHINGTON - Retail sales jumped in August by the largest amount in more than three years, but economists warn that as long as credit stays tight and jobs remain scarce, Americans probably aren't ready to spend in force again.

Underscoring just how fragile the economic recovery is, Best Buy said Tuesday that customers are spending less in its electronics stores, and Kroger said grocery shoppers are still buying only what they need for the next week, or even the next meal.

The gains for August included a big jump in auto sales, mostly from the government's recently ended Cash for Clunkers program. Retail sales overall rose by a seasonally adjusted 2.7 percent, the largest gain since 2006, the Commerce Department said.

Economists were cautious.

"We need more data to see if this is sustainable or just noise," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a research note. "The income and credit constraints on consumers remain intense."

Even though the recession is probably technically over, Federal Reserve Chairman Ben Bernanke said Tuesday, "It's still going to feel like a very weak economy for some time."

Auto sales were up 10.6 percent, the biggest gain in almost eight years, mainly because of the recently ended clunkers program. Gas station sales increased 5.1 percent, as prices at the pump rose.

Excluding those two categories, sales rose 0.6 percent - still the best performance in six months.

"That's a pretty good rate - if it was sustained," said Brian Bethune, chief U.S. financial economist at IHS Global Insight.

Consumer spending accounts for about 70 percent of the nation's economy. Analysts note that Americans are saving more even as their incomes stay flat. If they don't consistently spend more, the economic recovery could weaken next year.

Bethune said retail sales last month were helped by tax holidays in several large states, including California, Texas and Florida, and school openings were delayed in some places because of budget constraints. Both factors probably pushed some back-to-school sales from July into August, giving that month's sales figures a lift, he said.

With government incentives no longer available, auto sales will probably fall in coming months. Bethune called it "the hangover from Cash for Clunkers." He expects consumer spending to rise 2.5 percent this quarter, then slip later this year.

The recession has cut so deeply that even as retail sales show signs of life, they remain substantially below levels of a year ago.

Kroger Co., the nation's largest grocery chain, said shoppers are showing signs of running out of money by the end of the month. They're also trading down even among store brands, increasingly choosing the cheapest option.

Store traffic is up slightly at Best Buy Co. Inc., but it, too, said shoppers are spending less. The company raised its conservative sales and earnings expectations but said the weak economy would keep a lid on spending.

Even though it was helped by the bankruptcy of Circuit City, Best Buy's U.S. sales at stores open at least 14 months, a key indicator, still fell 3.1 percent.

"Consumers are nervous, and are looking at every purchase with equal importance, from the large-ticket items to what they're eating for lunch or dinner," said Doug Conn, managing director of New York-based Hexagon Securities.

A report from the Labor Department, meanwhile, signaled that the still-weak economy is keeping inflation in check. Wholesale prices rose 1.7 percent in August, more than double what economists expected, after slipping 0.9 percent in July. Both months were skewed by volatile energy prices.

Excluding energy and food costs, what economists call core inflation, as measured by the Producer Price Index, posted a more modest 0.2 percent increase, close to what was expected.

Wall Street rose in afternoon trading. The Dow Jones industrial average traded for a time over 9,700 and closed up 57 points at 9,683, a new high for the year.

Unemployment - and anxiety among those who still have jobs but whose wages are flat - has been a drag on spending. The jobless rate, now at a 26-year high of 9.7 percent, is expected to hit 10 percent by the end of this year. The Fed chief said Tuesday that the economy is probably growing now, but not enough to keep the jobless rate from climbing.

Though many analysts have been encouraged by signs U.S. home prices are stabilizing, others aren't sure the market has hit bottom. Deutsche Bank analyst Karen Weaver predicted Tuesday that national home prices won't stop sliding until next summer and will probably fall another 10.5 percent from this summer's levels. Bigger declines are expected in some cities, like New York, Salt Lake City, Fort Lauderdale and Baltimore.

Treasury Secretary Timothy Geithner said Tuesday in an interview on ABC's "Good Morning America" that a sustained economic rebound depends on a strengthening job market.

"I would say there's no recovery yet," Geithner said Tuesday. "We define recovery ... as people back to work, people able to get a job again, businesses investing again ... and we're not at that point."

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AP Business Writers Martin Crutsinger, Alan Zibel, Jeannine Aversa, Daniel Sewell in Cincinnati and Mae Anderson in New York contributed to this report.