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Associated Press
A sales clerk Tanisha Thompson arranges T-shirts inside the Nets Shop in New York. The government reported how much U.S. businesses adjusted their stockpiles in May.

US economy looks weak after subpar retail sales

– The U.S. economy appears to be weaker than many economists had 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.

Economists said the deceleration in retail sales could slow economic growth in the April-June quarter to an annual rate of less than 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.

Still, many economists aren’t changing their forecast for the second half of the year. Most expect growth will rebound to around a 2.5 percent rate.

“Job growth, income growth, rising stock prices and higher home prices all suggest a healthier state for the household sector in the second half of the year,” said Paul Dales, chief U.S. economist at Capital Economics.

Consumers are still increasing their spending. But their pace has dropped off sharply from the start of the year. Core retail sales increased from April through June at a 2.7 percent annual rate. That’s down from a 4.2 percent rate during the first three months of the year.

The decline suggests an increase in Social Security taxes that took effect Jan. 1 may be starting to squeeze consumers. And that’s slowing growth because consumers’ spending accounts for about 70 percent of economic activity.

Most analysts expect U.S. economic growth to bounce back in the second half of the year. The biggest reason for their optimism is an improving job market that should help offset the drag from the tax increase.

Employers have added an average 202,000 jobs a month this year, up 180,000 in the previous six months.

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