Sagging retail sales hurt recovery

Associated Press

WASHINGTON — A second straight month of declining retail spending will likely keep unemployment high and help weaken the recovery.

Not everyone is suffering, though. Shoppers with stable jobs and steady pay can find lots of bargains. The economy is bleaker for anyone seeking a job or at risk of losing one.

Still, Americans as a group are spending less, and that threatens the pace of the recovery.

“Clearly, the consumer is being more cautious now,” said David Wyss, chief economist at Standard &Poor’s in New York.

Consumer spending accounts for 70 percent of economic activity. It grew at a solid rate during the first three months of the year. But consumers have since held back in the past two months. Many are worried about high unemployment, a volatile stock market and a housing industry that has struggled without government incentives.

Retail sales revenue fell 0.5 percent in June, the Commerce Department reported Wednesday. That followed a 1.1 percent fall in May.

Pulling down the overall June figures was a drop in auto sales and declining gas prices. Excluding those volatile categories, sales ticked upward slightly for the month.

June’s disappointing retail sales figures also come as businesses are slowing their pace of restocking their shelves. The Commerce Department said Thursday that business inventories rose 0.1 percent in May. But sales dropped 0.9 percent, the first decline since March 2009.

Businesses helped drive the early stages of the recovery last year by building up their stocks after slashing them during the recession. The worry is that if consumer demand falters, businesses will cut back. That could mean fewer orders to U.S. factories and weaker output from manufacturers.

One encouraging sign for the economy is that companies are spending more on technology.

Intel, the world’s No. 1 semiconductor company, this week reported its biggest quarterly net income in a decade. The company’s second-quarter earnings figures showed that large corporations are now buying more computers that use Intel’s most expensive chips.

Those consumers who have the extra cash are able to take advantage of discounts. Wyss said consumers with jobs were responding to bargains. It just doesn’t show up in retail sales statistics, which are not adjusted for price changes.

For example, if a store discounts a shirt by 20 percent, it must sell more shirts to make up for the difference in prices.

Still, the best evidence may be found in the incentives being offered. With their stockpiles of cars rising, some automakers are beginning to sweeten deals as they start to clear showrooms for 2011 models.