Dim retail sales hurt economy, Fed notes

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WASHINGTON --- A second consecutive month of declining retail spending likely will keep unemployment high and help weaken the recovery.

Not everyone is suffering, though. Shoppers with stable jobs and steady pay can find lots of bargains. Still, Americans as a group are spending less, and that threatens the pace of the recovery.

Federal Reserve officials took note of the weakness when they met in June, the minutes of that meeting show. The Fed signaled that it stood ready to take new steps to sustain the recovery if the economy worsened.

In the meantime, Americans likely will be spending only warily.

"Clearly, the consumer is being more cautious now," said David Wyss, the chief economist at Standard & Poor's in New York.

Consumer spending accounts for 70 percent of economic activity. It grew at a solid rate during the first three months of the year, but consumers have held back in the past two months. Many are worried about high unemployment, a volatile stock market and a housing industry that has struggled without government incentives.

Those economic conditions prompted Federal Reserve officials to cut their forecasts for growth this year slightly, according to minutes from the Fed's June 22-23 meeting that were made public Wednesday. Fed policymakers revised their growth forecasts to between 3 percent and 3.5 percent this year. That's down from a forecast of 3.2 percent to 3.7 percent made in April.

With risks growing, the Fed saw the need to explore new options for bolstering the economy. That's a turnaround from earlier this year when they were moving to wind down crisis-era supports.

If the recovery deteriorates, Fed policymakers have options. They could revive programs to buy mortgage securities or government debt. They could lower the rates banks pay for emergency Fed loans. The Fed also could create a new program to spark more lending to businesses and consumers in a bid to lure them to ratchet up spending and grow the economy.

Shop talk

RETAIL SALES: Retail sales declined in June for the second straight month, falling 0.5 percent.

BARGAINS FOR SOME: Shoppers with stable jobs and steady pay can find bargains. The economy is bleaker for anyone seeking a job or at risk of losing one. Still, Americans as a group are spending less, and that threatens the pace of the recovery.

FED READY: Federal Reserve officials took note of the weakness when they met in June, the minutes of that meeting show. The Fed signaled that it stood ready to take new steps to sustain the recovery if the economy worsened.

-- Associated Press


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