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Reports show high gas prices and feeble hiring are keeping economy from gaining momentum
WASHINGTON (AP) ' A mixed slate of reports Thursday showed the economy is being held back by high gas prices and sluggish hiring.
Economists are forecasting a pick-up in growth in the second half of the year. But the latest data revealed only faint signs of a turnaround.
The Commerce Department said retail sales ticked up only 0.1 percent last month, after declining the previous month. Consumers spent more on cars and in big chain stores in June, but less on furniture and appliances.
The number of people who applied for unemployment benefits dropped last week by 22,000 to a seasonally adjusted 405,000, the lowest level in three months. Still, applications have been above 400,000 for 14 straight weeks, reflecting the weak job market.
U.S. companies paid less for raw materials and factory goods in June, a separate report showed. The decline in wholesale prices was driven by the steepest fall in energy prices in nearly two years. Gas prices dropped by the most since last May, the Labor Department said.
Still, businesses and motorists are paying nearly a dollar more per gallon than they were a year ago. That has forced many consumers to forgo discretionary purchases. Growth in retail sales has slowed since February ' around the same time that gas prices began to surge.
"Consumers are fatigued," said Chris Christopher, an economist at IHS Global Insight. "The only real good news on the consumer side of the economy is that gasoline prices started to fall, but are still relatively high."
Stock markets rose in early trading but then gave up their gains. The Dow Jones industrial average fell 11 points in midday trading. Broader indexes also declined.
Another potential problem: businesses may be forced to cut orders in the coming months after adding to their stockpiles for 17 straight months. Sales across all levels of businesses fell in May for the first time in nearly a year, the Commerce Department said in a fourth report. Fewer sales are a sign that companies may have overestimated consumer demand.
"Clearly the recent stalling in employment growth has forced households to be a bit more careful with their cash," said Paul Dales, senior U.S. economist with Capital Economics. "For the moment, these data will do little to dispel fears that the economic recovery is going nowhere."
Companies pulled back on hiring sharply this spring. The economy added only 18,000 net jobs in June, the second straight month of dismal hiring. The unemployment rate rose to 9.2 percent, the highest this year. That's far below the average job gains of 215,000 per month in the February-April period.
The decline in unemployment benefit applications is an encouraging sign that layoffs are dropping and the job market may be slowly improving. The total would have been even lower if Minnesota's government wasn't shutdown. That caused 11,500 state workers to file applications last week, the department said.
Applications had fallen in February to 375,000, a level that signals healthy job growth. But they rose above 400,000 in early April and have yet to fall below that level since.
The four-week average, a less volatile measure, dropped to 423,250 last week. That's the lowest since late April.
Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that temporary factors, such as high gas prices and supply chain disruptions caused by the Japan crises, have slowed the economy. They should begin to fade and the economy should grow at a faster pace in the second half of this year, he said. But if not, he said the central bank is prepared to do more to stimulate growth.
Gas prices peaked in early May near $4 a gallon but have fallen steadily since. Prices at the pump averaged $3.66 on Thursday, according to AAA.
Cheaper gas dragged down overall retail sales in June. Sales at gas station tumbled 1.3 percent in June.
Consumers also spent less on furniture, electronics, appliances and sporting goods for a third straight month.
Shoppers did boost purchases at general merchandise stores, which include stores such as Wal-Mart and Target. Sales at those stores rose 0.4 percent.
The Producer Price Index, which measures price changes before they reach the consumer, declined 0.4 percent in June. Wholesale energy prices fell 2.8 percent, the biggest decline in nearly two years.
Food prices rose 0.6 percent in June, mostly because of higher fruit and melon costs. Oranges jumped 41.2 percent, and carbonated soft drinks rose 7.5 percent, the most since the government began tracking that category in 1996.
Excluding the volatile food and energy categories, the so-called core index rose 0.3 percent, driven largely by a jump in prices for pickup trucks.
The economy expanded only 1.9 percent in the January-March period, and most economists believe it grew at a similarly weak pace in the April-June period.
Many economists expect growth to rebound to a 3 percent pace in the second half of the year. But growth must be stronger than that to significantly lower the unemployment rate.
The economy would need to grow 5 percent for a whole year to bring down the unemployment rate by one percentage point. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.