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Originally published August 15, 2013 at 6:05 PM | Page modified August 15, 2013 at 6:07 PM

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Tepid U.S. retail sales raising doubts about economy

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.

The Associated Press

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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,” 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 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 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 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 meals 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.”

The trend has weakened sales and profits at 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.

The Bentonville, Ark.-based discounter 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.

The company attributed its gloomier report in part to a Social Security tax increase that’s reduced most Americans’ paychecks this year. Charles Holley, Wal-Mart’s chief financial officer, said its customers appear reluctant to buy discretionary items like flat-screen TVs.

Retail analysts note that back-to-school sales have been slow — potentially a worrisome sign for winter holiday sales late this year.

If back-to-school business falls below expectations, stores could pare their holiday orders, Perkins said. That would slow production at manufacturers.

Michael Niemira, chief economist at the International Council of Shopping Centers, expects sales for the back-to-school season to grow 3.1 percent from last year to $42.2 billion. That would be less than the 3.6 percent gain in 2012 and below the 3.3 percent average annual increase for the past decade.

Though the economy officially emerged from recession in June 2009, many consumers remain reluctant to buy goods that aren’t discounted, said Sung Won Sohn, an economist at California State University.

Sohn noted that J.C. Penney’s former CEO, Ron Johnson, learned that lesson the hard way after he eliminated sales at Penney’s. Many shoppers deserted Penney’s, and Johnson lost his job.

Retailers who cater to middle- and lower-income shoppers have suffered in part because their customers haven’t benefited as much from the recovery. Rising stock prices and home values have mainly benefited upper-income Americans.

“It’s getting better on Wall Street and in the news reports, but the economy isn’t getting better with the average consumer,” said C. Britt Beemer, chairman of America’s Research Group, a consumer research firm.

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