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Economy

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Photos by Cathie Rowand | The Journal Gazette
Ismael Mohamed stocks shelves Thursday at Wal-Mart at Southtown Centre. Slow retail sales worry economists.

Retail sales raise economic doubts

Robert Stephens washes windows Thursday in preparation for the reopening of the Wal-Mart at Southtown Centre.

– Bleaker outlooks at retailers like Wal-Mart and Macy’s are raising doubts that consumers will spend enough in coming months to lift the still-subpar U.S. economy.

Though the economy is growing steadily, Americans are being hampered by weak pay, higher taxes and tepid hiring. Sluggish overseas economies are also slowing sales for U.S. retailers. It’s a picture the Federal Reserve will weigh in deciding whether to scale back its bond purchases next month.

“Consumers aren’t going to start spending with abandon until we see much stronger job and wage growth,” says Mark Vitner, an economist at Wells Fargo.

Average weekly paychecks have grown just 1.3 percent since the recession ended more than four years ago. Over the past 12 months, pay has trailed even low inflation. That’s why spending has remained lackluster and why many Americans may be postponing purchases at department stores so they can afford to buy cars, homes and other costly necessities.

Americans increased their spending at an annual rate of just 1.8 percent in the April-June quarter – down from a 2.3 percent rate in the January-March period. Consumer spending is expected to improve in the second half of the year. But most economists foresee only a slight acceleration to an annual rate of 2 percent to 2.5 percent.

Those spending rates are historically weak. And they’re too meager to significantly boost the economy, which grew at an annual rate of just 1.4 percent in the first half of the year. Consumer spending fuels about 70 percent of the economy.

For much of this year, many Americans have made major purchases that they had postponed during the recession and the weak economic recovery. Auto and home sales have strengthened. Yet that’s left less spending money for discretionary purchases such as electronic goods, clothes and eating out.

“Consumers are very much need-based,” said Ken Perkins, president of RetailMetrics, a retail research firm. “If they’re buying a new car, that leaves less money for a child’s wardrobe.”

That trend has weakened sales and profits of many retailers, such as Macy’s. On Wednesday, Macy’s reported a disappointing profit for its second quarter and cut its outlook for the year.

And Wal-Mart, the world’s biggest retailer, issued a quarterly earnings report Thursday that intensified worries about the strength of U.S. consumers, long a driving force for the global economy.

The Bentonville, Ark.-based discounter cut its annual profit and revenue forecasts. Wal-Mart said it expects economic strains in the United States and abroad to squeeze its low-income shoppers the rest of the year. Wal-Mart is considered an economic bellwether: It accounts for nearly 10 percent of nonautomotive retail spending in the United States.

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