US economy looks weaker after subpar retail sales

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WASHINGTON (AP) – The U.S. economy appears to be weaker than many economists thought after a report Monday showed consumers spent cautiously in June at retail businesses.


Americans bought more cars and trucks, furniture and clothes. But they cut back almost everywhere else. They spent less at restaurants and bars, reduced purchases at home improvement stores and bought fewer computers and electronics.


Overall retail spending rose 0.4 percent in June from May, the Commerce Department said. But excluding volatile spending on autos, gasoline and building supplies, so-called core retail sales rose just 0.15 percent. That’s the weakest gain since January.


Core sales are used to calculate overall economic growth. Economists said the deceleration in June could slow growth in the April-June quarter to an annual rate below 1 percent. That’s weaker than many had thought and would be down from a tepid 1.8 percent rate in the January-March quarter.


Many still expect growth will rebound in the second half of the year, fueled by more hiring and less drag from an increase in Social Security taxes. But the weaker spending report was a disappointing sign.


“It is disconcerting that retail sales growth lost more momentum as the second quarter progressed,” said Paul Dales, senior U.S. economist at Capital Economics.


Other reports Monday added to worries that growth had weakened in the second quarter. Businesses increased their stockpiles only slightly in May, signaling fewer orders of factory-made goods.


And economic growth in China slowed in the April-June quarter to its lowest rate in more than two decades. That could hold back U.S. manufacturing and exports, both of which had already been struggling this year.


Analysts are still hopeful that U.S. economic growth will start to rebound this summer and accelerate to around a 2.5 percent annual rate in the second half of the year.


The biggest reason for the optimisms is an improving job market. Employers have added an average 202,000 jobs a month this year, up 180,000 in the previous six months. Stronger job gains should increase income and boost consumers’ spending, which drives 70 percent of economic activity.


Economists also point to a housing recovery that continues to gain momentum. That’s lifting home prices, making Americans feel wealthier and more likely to spend. It’s also adding construction jobs.


“Retail sales will continue to grow at a moderate clip, as gains in disposable income stemming from moderate job creation outweigh the lingering effects of payroll tax increases,” said Martin Schwerdfeger, senior economist at TD Economics.


There were some encouraging signs in the retail sales report that consumers remain confident in the economy. Spending on cars and trucks rose 1.8 percent — the biggest gain since November. And furniture sales jumped 2.4 percent last month. Both gains show many consumers are still making large purchases.


Over the past year, car and truck sales have risen 11.4 percent, according to the government’s data. That shows autos remain the most vibrant part of the retail economy.


Earlier this month the nation’s automakers also reported robust sales in June. Sales totaled 7.8 million from January through June, the best first half since 2007. And the outlook for the rest of 2013 is just as strong. Wider credit availability and hot-selling new vehicles are helping to boost sales. Demand for big pickups has been a key factor in higher sales.


Monday’s government report comes after some retail chains reported their best sales gains since January. Revenue at stores opened at least a year rose 4.1 percent in June compared with the same month a year ago, according to a preliminary tally of 13 retailers by the International Council of Shopping Centers.


June is typically when stores clear out summer merchandise to make room for fall goods. Brisk sales mean that stores probably won’t be stuck with piles of summer clothes that need to be cleared as back-to-school sales kick off in late July.


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