Consumers remain cautious with their money

WASHINGTON - Americans are keeping their spending cautiously despite healthy job growth this year.

The Commerce Department says retail sales fell 0.3 percent in June, the weakest showing since February's harsh winter weather kept shoppers indoors. That followed a robust 1 percent jump in May, though that was revised down from a previous estimate of 1.2 percent.

Economists had expected that consumers would rein in their spending after May's large gain. But the reversal was much sharper than projected.

It suggests that consumers, still scarred by the Great Recession, are reluctant to spend freely even as unemployment has fallen and gas prices are about 90 cents cheaper than a year earlier.

In part, that's because wage growth has hovered around only 2 percent throughout the recovery, which started in 2009. In a more typical rebound following a recession, hourly earnings should rise at an annual rate of 3 percent or 4 percent.

Excluding autos, gas, building materials and restaurants, so-called core retail sales - which factor into the government's official measure of economic growth - fell 0.1 percent in June, after an increase of 0.7 percent in May.

Spending at restaurants and bars, an area of strength in recent months, slipped 0.2 percent. Sales of building materials fell 1.3 percent. Online and catalog retailers reported a 0.4 percent drop in sales.

Sales at auto dealers fell 1.1 percent, but that drop came after a big gain in the previous month. Auto purchases reached the highest level in a decade in May, so even with the decline, sales remain at a healthy level.

Economists watch the retail sales report closely because it provides the first indication each month of the willingness of Americans to spend. Consumer spending drives 70 percent of the economy. Yet retail sales account for only about one-third of spending, with services such as haircuts and Internet access making up the other two-thirds.

Although Americans tightened their purse strings last month, Paul Ashworth of Capital Economics said overall consumer spending remains solid.

"The 0.3 percent [month-over-month] decline in retail sales in June is a little disappointing but, given the strength of sales in earlier months, it still looks like real consumption increased by a healthy 2.7 percent annualized over the second quarter as a whole," he said in a note.

Economist Dean Baker of the Center for Economic and Policy Research also points out that, as a percentage of their income, consumers have also kept spending at a decent clip.

Overall consumer spending surged in May, the Commerce Department said last month. It jumped 0.9 percent, the most in nearly six years, as income rose and Americans saved less.

The Conference Board's consumer confidence index jumped in June to its second-highest level since the recession ended in June 2009. It is now 17.4 percent higher than a year ago.

And Americans are borrowing more: Consumer credit, which includes auto, student and credit card loans and excludes mortgages, rose a healthy 6.5 percent in May from a year earlier.