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Retailers Crank Up Promotions in June

There are increasing signs that the consumer may be becoming more skittish and starting to hunker down again.

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That's not good when you consider that retail sales have been slipping for two months now.

One sign of the growing caution was an increase in the savings rate, which rose to 4.0 percent in May from 3.8 percent in April, the Commerce Department reported Monday. Savings increased to its highest level since September.

The savings came as incomes rose for the sixth time in seven months. That should have been enough to get households spending, but it did not.

Consumers are still unnerved by high levels of unemployment, tight credit and a slumping housing market.

The lack of spending may be hurting retailers. UBS specialty retail analyst Roxanne Meyer put out a research note that said that her store checks showed an increase in promotions. Of course, it's tough to know whether these sales were planned by retailers or if they were forced to discount in a desperate attempt to move inventory out the door.

But Meyer noted that Ann Taylor's Loft stores were cutting prices by 40 percent, which was surprising given a new collection of clothing had recently hit the store's racks. Also,J. Crewwas marking down a few newer items, according to Meyer.

Another troublesome sign is that the depth of the promotional cuts has deepened across the specialty retail sector compared with the same time last year. According to Meyer, there are more signs offering 60 percent off of men's apparel and 75 percent off of women's apparel as you travel from store to store. Meyer also observed some "redlines", or discounts off of previously discounted merchandise, which would bring the total price reduction to 60 percent off the original price.

Still, Meyer described the trends as choppy, with some retailers seeing strong store traffic and a decline in discounting from last year.

It's easy to assume that investors are worried about the prospects for retailers. Stocks in the sector continue to struggle. Shares ofJ.C. Penney, for example, hit a fresh 52-week low earlier today. The department store has been struggling to compete with rivals like Kohl's and Macy's , which have been performing better in this challenging climate.

Next week, investors will get a clearer picture of retail sales in June, when some chain-stores report their monthly sales. But the latest comments from companies likeNikeand Bed Bath & Beyondhave not been encouraging.

Questions? Comments? Email us at consumernation@cnbc.com

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