Retail sales fell in June for the second straight month, more evidence that the recovery will slow in the second half of the year.
Spending on retail goods dropped 0.5 percent in June, the Commerce Department reported Wednesday. That followed a 1.1 percent fall in May. Excluding autos, spending was down 0.1 percent in June.
Pulling down the overall June figures was a drop in auto sales and declining gas prices. When taking those out, sales would have risen 0.1 percent for the month.
Separately, the Commerce Department said that business inventories rose 0.1 percent in May. But sales dropped 0.9 percent, the first decline since March 2009.
Americans are spending less and that could threaten the pace of the recovery. Consumer spending accounts for 70 percent of economic activity. But consumers have held back because of high unemployment and other signs that have dampened their confidence, such as the volatile stock market and a struggling housing market.
"June's retail sales figures add to the growing batch of evidence suggesting that the economic recovery shifted into a lower gear towards the end of the second quarter," Paul Dales, U.S. economist at Capital Economics, wrote in a research note. "Activity at the end of the quarter was much weaker than at the beginning."
Dales said he was not looking for the economy to slip back into recession. But he expects overall economic growth to be disappointing for the rest of this year and into 2011.
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.
The disappointing retail sales report had a limited impact on Wall Street, which continued a six-day upward climb. The Dow Jones industrial average rose 20 points in early trading.
June is typical a time when stores clear out their merchandise to make room for fall products. But stores were forced to deepen discounts even more than planned to draw recession-scarred shoppers.
The overall decline in retail sales was dragged down by a 2.3 percent plunge in auto sales, the biggest monthly drop since auto sales fell 2.5 percent in February.
Also, falling fuel prices pulled down gasoline stations sales by 2 percent.
Some industries showed signs of strength in June. Department stores sales posted a 1.1 percent gain. The larger category of general merchandise stores, which includes such big retailers such as Wal-Mart, posted a 0.2 percent increase, but that followed a 1 percent drop in May.
Sales at specialty clothing stores were up 0.6 percent in June. Sales at appliance stores posted a 1.3 percent advance. But there was weakness at hardware stores, where sales dropped 1 percent, and at furniture stores, which saw a decline of 1.1 percent.
The retail sales report follows a reading last week from the nation's big retailers showing modest growth in June. The International Council of Shopping Centers' index showed a 3 percent gain in revenue for the month from the previous year. That compared to the same month a year ago, when revenue dropped 5.1 percent from the previous year. The index tracks sales at stores open at least a year.
Diminished consumer spending could drag on overall economic growth.
Growth slowed to 2.7 percent in the first three months of this year and many analysts believe it won't be much better in the April-June quarter. Some are looking for growth to slow to around 2.5 percent in the final half of this year