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The producer price index, a measure of wholesale prices, dropped 1 percent in May, the Labor Department said in a separate report. That's the biggest decline since July 2009. It reflected a 9 percent fall in wholesale gas prices. Consumers are already feeling less pinched by gas prices. The average national price for a gallon of gas was $3.54 Wednesday
-- 40 cents cheaper than the year's peak price in early April. Modest wholesale inflation reduces pressure on manufacturers and retailers to raise prices. That helps keep consumer prices stable, which boosts buying power and drives growth. Consumer spending makes up about 70 percent of economic activity. Weaker consumer spending and mild inflation could give the Federal Reserve room to hold interest rates at record-low levels and potentially take other steps to boost the economy. Still, most economists don't expect the Fed to take further steps at its policy meeting next week. A third report Wednesday showed that businesses restocked at a slightly faster rate in April than March. When businesses step up restocking, they order more goods. That generally leads to increased factory production and higher growth. But further stockpile growth depends on increased spending by consumers. Some of the weakness in retail sales may be payback for stronger spending at the start of the year. A warm winter encouraged some homeowners to get a head start on remodeling and landscaping projects that normally occur in spring. Still, economists worry that consumer spending may further weaken if hiring and pay doesn't pick up.
Workers' average hourly earnings rose just 1.7 percent in the 12 months that ended in May. That was below the pace of inflation during that period. And job growth has slowed since the start of the year. Employers added 226,000 jobs on average during the first three months of the year. In April and May, they added an average of only 73,000. "It looks like concerns over slowing job growth, a drop in equity markets over the past three months, and softer income growth are making U.S. consumers think twice about their purchases," said Jennifer Lee, senior economist at BMO Capital Markets.
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