The Norman Transcript

August 17, 2013

Tepid U.S. retail sales raising doubts about economy

By Christopher S. Rugaber and Anne D’Innocenzio
The Associated Press

WASHINGTON — 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 as soon as next month.

“Consumers aren’t going to start spending with abandon until we see much stronger job and wage growth,” said 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 partly why spending has remained lackluster and why many Americans may be postponing purchases at department stores so they can 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 U.S. economy.

For much of this year, many Americans have made major purchases that they had postponed during the recession and the weak 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 the sales and profits of retailers like 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 an earnings report Thursday that intensified worries about the strength of U.S. consumers, long a driving force for the global economy.