"June's retail sales figures add to the growing batch of evidence suggesting that the economic recovery shifted into a lower gear toward the end of the second quarter," said economist Paul Dales of Capital Economics.
Consumer spending accounts for two-thirds of U.S. economic activity, so retail sales and related reports are closely monitored to gauge the health of the economy.
The worse-than-expected decline was led by a slump in autos. Motor vehicle and parts sales dropped 2.3% during the month.
Sales excluding autos and auto parts dropped 0.1% last month. Economists had projected sales excluding autos to hold steady in June.
Welcome to the BBQ recovery: Low and slow"To put this into context, in the six months before May, this category of sales was increasing at an average monthly rate of 0.6%," Dales said.
Sales at gasoline stations fell 2%. Furniture sales dropped for a third month in a row and building materials fell for a second straight month, which Dales said may be linked to the slump in housing activity following the expiration of the homebuyer tax credit.
Meanwhile, sales at electronic and appliance stores rose 1.3% during the month, helped by the release of new products including Apple'siPhone 4, Dales said.
Total retail sales were up 4.8% over the same period last year.
"Activity at the end of the quarter was much weaker than at the beginning," Dales said. "It has therefore become much more likely that private sector demand will not be able to offset the fading of the fiscal stimulus."
While Dales does not expect the economy to fall into another recession, he said U.S. gross domestic product growth could slow from 3.5% this year to 2.5% in 2011, which he believes would be disappointing.
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