US economy appears weaker as retail sales slump

By Martin Crutsinger

Associated Press

Published: Monday, July 16 2012 2:51 p.m. MDT

FILE- In this June 15, 2012, file photo, a woman walks into a Lane Bryant store in San Jose, Calif. Americans cut their spending at retail businesses for a third straight month, as a weak job market made consumers more cautious. Retail sales fell 0.5 percent in June from May, the Commerce Department said Monday, July 16, 2012. Consumers spent less on autos, furniture, appliances, building and garden supplies and other items from department stores.

Paul Sakuma, File, Associated Press

WASHINGTON — The outlook for the U.S. economy appeared dimmer Monday after a report that Americans spent less at retail businesses for a third straight month in June.

The report led some economists to downgrade their estimates for economic growth in the April-June quarter. Many now think the economy grew even less than in the first quarter of the year, when it expanded at a sluggish 1.9 percent annual rate.

Spending in June fell in nearly every major category — from autos, furniture and appliances to building, garden supplies and department stores. Overall, retail sales slid 0.5 percent from May to June, the Commerce Department said.

Retail sales hadn't fallen for three straight months since the fall of 2008, at the height of the financial crisis.

The weak U.S. spending figures were released on the same day that the International Monetary Fund slightly lowered its outlook for global growth over the next two years.

Stocks fell after the Commerce report was issued. The Dow Jones industrial average sank 74 points in early trading. Broader indexes also declined. Later in the day, stocks regained some of their losses.

"However hard you look, there's just no good news in this report," said Paul Ashworth, chief U.S. economist at Capital Economics.

Weakening retail spending could make the Federal Reserve more likely to act further to try to encourage more borrowing and spending by lowering long-term interest rates. The Fed's policy committee will meet at the end of this month.

Most economists don't expect new Fed action after that meeting. But some said Monday's Commerce report, coming after three straight months of tepid hiring, makes some Fed action more likely by year's end.

Fed Chairman Ben Bernanke will testify to Congress about the economy on Tuesday and Wednesday.

Despite the lackluster spending in April through June, retail sales were still 4.7 percent higher in the second quarter than in the same period in 2011. And the figures don't include spending on services, which makes up about two-thirds of consumer purchases. Services range from doctor's visits and plane tickets to rent payments and utility bills.

Spending figures for services aren't yet available for June. But consumers have spent more on services each month this year.

Still, Ashworth said economic growth likely slowed to an annual rate of just 1.5 percent in the second quarter. That's isn't enough to lower high unemployment. The U.S. unemployment rate is 8.2 percent.

In Monday's report, Commerce also said Americans spent less in April than previously thought. In part because of that, Michael Feroli, an economist at JPMorgan Chase, lowered his estimate of growth in the April-June quarter from a 1.7 percent annual rate to a 1.4 percent rate. And he lowered his forecast for the July-September quarter to a 1.5 percent growth rate, down from a 2 percent rate.

Chris G. Christopher Jr., senior economist at IHS Global Insight, thinks the economy grew at an annual rate of just 1.3 percent last quarter. He doesn't see much of a pickup in the second half of 2012: The annual growth rate will likely stay below 2 percent, he said.

Christopher said the biggest problem is meager job growth. Americans have also been rattled by gyrating stock prices stemming from Europe's debt crisis.

"Consumers are getting hit from all sides," Christopher said, despite the benefit of sharply lower gas prices since early April.

Lewis Tipograph, owner of Kid's Closet, a midpriced children's clothing store in Washington, D.C., said his business has suffered since April. Customers are more uneasy, he said.

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