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Tickers in this Article: ANF, JCP, M, JWN, COST
Since the collapse of the debt-fueled consumer spending era in 2007, investors have been anxiously waiting signals that shoppers didn't flee the retail scene forever. Unfortunately, the Commerce Department's June retail sales report provided anything but optimism. A glance at the headline figure states a month-over-month increase. However, a second look reveals an ongoing sober story for the retail industry. IN PICTURES: Eight Ways To Survive A Market Downturn

Snap Back to Reality
The 0.6% rise in June retail sales over the previous month offered an initial sigh of relief from investors. After all, positive economic data in any area of our economy has been rare lately. The problem is that this figure does not reflect reality. The increase was attributed to rising gas prices and a slight increase in auto consumption - neither of which gives reason to believe that the consumer sector is regaining strength. Stripping out these two factors, sales slipped 0.2%. (For related reading, see Using Consumer Spending As A Market Indicator.)

In addition, it's also important to remember that a single month-over-month increase in retail sales does not give reason to believe that the economy could be on the brink of a turnaround. Retail sales still dropped 9% year-over-year in June. Further, because we are in the midst of extraordinarily high unemployment levels, it's very doubtful that consumers are anywhere near regaining confidence to spend money on nonessentials.

Cautious Consumers
Last week's retail comps data concur. Teen retailer Abercrombie & Fitch (NYSE:ANF) reported a staggering 32% drop in same-store sales in June. Department stores J.C. Penny Co. (NYSE:JCP), Macy's (NYSE:M) and Nordstrom (NYSE:JWN) all posted significant declines in same store sales as well. Even discounter Costco (Nasdaq:COST) experienced a 6% drop in comparable sales. This indicates that shoppers across all income levels are still hoarding their cash from stores. (For more, see Analyzing Retail Stocks.)

This isn't a bad thing. Like financial institutions, consumers are working through a prolonged period of deleveraging to build more robust personal balance sheets. It's a process that will take time, but it's necessary for economy recovery. In time, the economy will hopefully flush out the excessiveness it built up over the past several years. Jobs will be recreated and consumer confidence will rise. Only then will we finally experience meaningful retail sales growth. (For more, see Consumer Confidence: A Killer Statistic.)

Don't Be Fooled
The bottom line here is that the headline retail sales figure for June is completely misleading. Consumers aren't spending in the places they need to be for true economic growth, which means retail sales will remain bleak for some time. And because consumer spending contributes such a large chunk to our economy's GDP, it's unlikely that economic growth as a whole is on the short-term horizon.

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