Shoppers put on brakes in August

An employee looks over a cellphone contract for a customer at a Best Buy in Mountain View, Calif. Consumers spent less on autos, clothing and furniture, leaving retail sales unchanged in August. The lack of growth in retail sales during a month of wild stock market fluctuations may increase recession fears.

Paul Sakuma

WASHINGTON -- U.S. consumers grew more cautious last month amid wild stock market swings, zero job growth and heightened concerns that the economy has weakened.

Retail sales were flat in August. At the same time, wholesale inflation leveled off. The latest data could give the Federal Reserve more impetus to adopt additional stimulus next week.

"The combination of those two reports sets the stage for, and warrants, additional action by the Fed," said Michelle Meyer, an economist at Bank of America Merrill Lynch.

Wall Street looked past the weak retail sales data. Growing optimism that European leaders would be able to contain their debt crisis drove stocks higher. The Dow Jones industrial average closed up 140 points for the day.

In August, consumers spent less on autos, clothing and furniture, the Commerce Department said Wednesday. Hurricane Irene disrupted sales along the East Coast, analysts said. But many consumers also were spooked after a grim month that renewed recession fears.

The government reported that the economy barely grew in the first half of the year. Lawmakers fought over raising the debt ceiling. Standard & Poor's downgraded long-term U.S. debt for the first time in history. Stocks tumbled -- the Dow lost nearly 16 percent of its value from July 21 through Aug. 10.

As a result, consumer confidence fell in August to its lowest level since April 2009, when the economy was still in recession. And employers added no net jobs during the month.

The government retail sales report is the first major read on consumer spending for August. Consumer spending is important because it accounts for 70 percent of economic activity.

The economy's weakness is helping to keep prices in check.

The Labor Department said its Producer Price Index, which measures price changes before they reach the consumer, was unchanged in August after a 0.2 percent rise in July. A drop in energy prices in August offset higher food costs.

The prices of oil, cotton and other commodities have come down in recent months, after pushing up most measures of inflation earlier this year. Slow inflation gives the Fed more room to take steps to boost the economy.

Fed Chairman Ben Bernanke acknowledged last week that inflation rose sharply in the spring. But he repeated his belief that the increase was temporary and that price pressures would moderate soon. Fed policymakers meet for two days next week. Many economists expect they will decide to shift money out of short-term mortgage-backed securities and into longer-term Treasury bonds. The move could push down longer-term interest rates, including rates on mortgages, auto loans and other consumer and business borrowing.