Next Score View the next score

    Consumers cut back on spending in June

    Report weaker than forecast; outlook brighter

    WASHINGTON — The US 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 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.

    Get Talking Points in your inbox:
    An afternoon recap of the day’s most important business news, delivered weekdays.
    Thank you for signing up! Sign up for more newsletters here

    Still, many economists aren’t changing their forecast for the second half of the year. Most expect growth will rebound to about 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 US 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 that an end to a cut in Social Security taxes may be starting to squeeze consumers. And that’s slowing growth because consumers’ spending accounts for about 70 percent of economic activity.


    Other reports Monday added to worries that growth had weakened. 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 reduce demand for US exports.

    Dales, however, said the risk is low because China makes up only 7 percent of America’s total market. The bigger threat to the US economy is if dampened growth in China spreads to nations that buy more US goods.

    Most analysts expect US economic growth to bounce back. An improving job market 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. Stronger job gains should boost overall income and boost spending.


    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.