The Commerce Department reported Friday that retail sales dropped by 0.3% last month. Economists expected sales to rise by 0.3%.
Sales in July also turned out to be even weaker than previously thought, falling by 0.5%, the worst showing in five months.
Rising unemployment, strained household budgets and falling home prices -- which make homeowners feel less wealthy -- are making shoppers more cautious.
Stripping out auto sales, which were strong in August, sales at all other merchants fell by 0.7%, the worst showing since December. That figure also was sure to disappoint economists, who were calling for a smaller, 0.2% dip.
Cutbacks were widespread.
Sales fell at electronics and appliance stores, clothing shops, building and garden stores, and department stores. Gasoline sales also dipped as prices retreated. Sales at furniture and home furnishing stores were flat. Those losses swamped gains elsewhere, including auto dealers, sporting goods, books and music stores, grocery stores and health and beauty shops.
Removing sales at gasoline stations, all other sales would have been flat in August.
Last week, many stores reported weak sales for August. The few bright spots: Wal-Mart Stores Inc. (WMT, Fortune 500), the world's largest retailer, and Costco Wholesale Corp. (COST, Fortune 500), where shoppers focused on low prices.
Many analysts predict shoppers will lose steam in the months ahead, slowing overall economic activity.
Economic growth clocked in at a brisk 3.3% pace in the spring, thanks to strong exports and more spending at home as the government's tax rebates motivated shoppers. However, growth in the current July-September quarter could slow to a 1.3% pace, according to some projections.
A growing number of analysts increasingly think the economy will actually shrink in the final three months of this year and possibly in the first three months of 2009.
One reason for the dour outlook is the deteriorating employment climate. The jobless rate in August jumped to 6.1%, a five-year high, and employers have cut jobs every month so far this year.
Existing home sales rise, but prices still sinking
Retail Sales
