Business

Retail sales decline, may weaken recovery

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.

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 up slightly for the month.

June's disappointing retail sales figures also come as businesses are slowing the pace of restocking their shelves. The Commerce Department said 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.

With their stockpiles of cars rising, some automakers are beginning to sweeten deals as they start to clear showrooms for 2011 models.

Toyota started its end-of-the-model-year discounts a month early in July. And its Lexus luxury brand continued an offer to delay payments for six months. Chrysler last week said it would make the first two monthly payments on most new vehicles and offer a 60-day money-back guarantee. Buyers also have the option of taking $3,000 to $4,000 in cash.

June is typically a time when stores clear out their merchandise to make room for fall products. But merchants were forced to offer deeper discounts to draw wary shoppers, according to BMO Capital Markets' John Morris, who monitors the volume and level of discounts at mall-based stores.

Even fall merchandise that just arrived at stores was being marked down.

Some retail merchants showed signs of strength in June. Department stores sales posted a 1.1 percent gain. The larger category of general merchandise stores, which includes big retailers such as Wal-Mart, posted a slight increase.

Sales at specialty clothing stores were up in June, as were those at appliance stores. But there was weakness at hardware stores, where sales dropped 1 percent, and at furniture stores, which saw a decline of 1.1 percent.

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