Retail spending has decreased for a second consecutive month which will mean the unemployment rate will remain high, which in turn will harm economic growth. Officials from the Federal Reserve acknowledged the situation and said that they were taking steps to ensure that the US economy would continue to recover in the future. Americans are likely to continue spending more cautiously at a time when consumer spending is vital to economic growth, especially as it accounts for over two thirds of economic activity. Many economists have expressed serious concerns over the continued high unemployment rates, the struggling housing industry and the turbulent stock markets.
The poor retail sales values for June come at a time when businesses are working at a reduced pace. The Commerce Department has reported a 0.1 percent rise in business inventories in May but with sales declining by 0.9 percent, which was the first such fall since the end of the first quarter of 2009.
According to a meeting on June 22-23, Feds are likely to cut their growth forecasts for the last two quarters of 2010 from around 3.45 percent to 3.25 percent, in light of the current economic conditions. Many policymakers were cautious about the global financial situation, which involves a major debt crisis taking place in Europe and a volatile Wall St and were keen to look for new options to improve the US economy and improve credit score of the middle class to encourage spending. These options may include renewing mortgage security programs, reducing the government’s debt or lowering the rate in which Feds are paid emergency loans by the banks. Last year, businesses initiated the first stages of the economic recovery as they expanded their stocks after the recession. From now on, the key to a full recovery will be to create environmental conditions in which businesses can begin to prosper – this could include creating a new programme which would involve increasing lending to consumers and businesses, in order to help drive spending and secure economic growth.