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Businesses took a more cautious approach to restocking in March, a trend that has helped slow economic growth this year. Companies' inventories grew just 0.3 percent, the Commerce Department said in a separate report. It was the smallest increase in four months. When companies cut back on stockpiling, it slows factory production and growth tends to decline. But if retail spending keeps rising, businesses will likely step up their restocking. That could boost growth in the April-June quarter. Two other reports provided some reason for optimism. A measure of manufacturing activity in New York state jumped in May, reversing a large drop in April. Measures of new orders and employment rose. And homebuilder confidence reached its highest level in five years in May, according to the National Association of Home Builders/Wells Fargo housing market index. Builders reported greater sales and higher traffic from prospective buyers. The retail sales report represents the government's first look at consumer spending for the April-June quarter. Consumer spending is closely watched since it accounts for 70 percent of economic activity. Consumer confidence has improved as gas prices have fallen. The University of Michigan said Friday that its Consumer Sentiment index for May rose to its highest level since January 2008. In the January-March quarter, overall economic growth slowed to an annual pace of 2.2 percent. That's down from the 3 percent increase in the October-December period, but faster than last year's 1.7 percent pace. Economists are concerned that income growth continues to lag behind inflation. That could weaken further if job gains don't pick up in coming months. Workers' average hourly earnings have risen just 1.3 percent in the 12 months that ended in April. And adjusted for inflation, average hourly pay declined 0.5 percent from April 2011 to April 2012. Many economists expect job growth will pick up in the next few months. But few see it being as strong as earlier this year. That should keep consumers spending and help the economy grow at a moderate pace.
[Associated
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