WASHINGTON (AP) - A second straight month of declining retail spending will likely 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. 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.
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 will likely be spending only warily.
"Clearly, the consumer is being more cautious now," said David Wyss, 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 since 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 forecast of 3.2 percent to 3.7 percent made in April.
The minutes of the Fed's June meeting, released Wednesday, revealed a more cautious mood among the Fed policymakers in light of Europe's debt crisis, a volatile Wall Street, a stalled housing market and high unemployment.
With risks growing, they 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. No new specific steps were disclosed or agreed upon.
If the recovery deteriorated, 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.
The Fed's weaker forecast sent the Dow Jones industrial average down more than 30 points before the Dow regained most of the loss. Investors worried about the strength of the recovery shifted money instead into the safety of U.S. Treasury bonds, causing their prices to rise.
In June, retail sales revenue fell 0.5 percent in June, the Commerce Department said. That followed a 1.1 percent fall in May.
Pulling down the overall June figures was a drop in auto sales and declining gas prices. Excluding those volatile categories, sales ticked upward slightly for the month.
June's disappointing retail sales figures also come as businesses are slowing their pace of restocking their shelves. The Commerce Department said Thursday that business inventories rose 0.1 percent in May. But sales dropped 0.9 percent, the first decline since March 2009.
Businesses helped drive the early stages of the recovery last year by building up their stocks after slashing them during the recession. The worry is that if consumer demand falters, businesses will cut back. That could mean fewer orders to U.S. factories and weaker output from manufacturers.
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.
Those consumers who have the extra cash are able to take advantage of discounts. Wyss said consumers with jobs were responding to bargains. It just doesn't show up in retail sales statistics, which are not adjusted for price changes. For example, if a store discounts a shirt by 20 percent, it must sell more shirts to make up for the difference in prices.
Still, the best evidence may be found in the incentives being offered. With their stockpiles of cars rising, some automakers are beginning to sweeten deals as they start to clear showrooms for 2011 models.
Toyota started its end-of-the-model-year discounts a month early in July. And its Lexus luxury brand continued an offer to delay payments for six months. Chrysler last week said it would make the first two monthly payments on most new vehicles and offer a 60-day money-back guarantee. Buyers also have the option of taking $3,000 to $4,000 in cash.
June is typically a time when stores clear out their merchandise to make room for fall products. But merchants were forced to offer deeper discounts to draw wary shoppers, according to BMO Capital Markets John D. Morris, who monitors the volume and level of discounts at mall-based stores.
The bargains are getting better in July. At AnnTaylor Stores Corp.'s low-price Loft, shoppers could get khaki pants for $10, down from $59, while white jeans were down to $19.99, from $79.50. At Men's Wearhouse, shoppers who buy any suit can get the second suit or sport coat for $100.
Even fall merchandise that just arrived at stores was being marked down.
"I am finding great value," said Bonnie Weiss, a hotel executive from White Plains, N.Y. who picked up summer clothing at 50 percent discounts and even bought fall suits at 30 percent off at places like Nordstrom and Bloomingdale's. She noted that even at Nordstrom Rack, she saw more racks of deeply discounted merchandise.
But some are forced to pass on the sales because they are worried about their finances.
"The deals are great, but I'm not actually buying because I can't afford it," said Angel Mendoza, 57, who was in midtown Manhattan on Wednesday. The former porter for a Wall Street firm says he has been collecting unemployment benefits since he injured himself in November. He has since moved in with his sister in Bayonne, N.J.
Some retail merchants 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 slight increase.
Sales at specialty clothing stores were up in June, as were those at appliance stores. 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.