Buying Surges as Wholesale Prices Dip 0.3%

Spurred by a late-summer boom in auto sales, consumer buying surged 1.9% to a record level in August, the government reported Friday, while wholesale prices for the month fell 0.3%--the largest drop in 2 1/2 years.

But this upbeat economic news--the brightest in months--was tempered by a report that industrial production increased only 0.3% last month, less than many economists had hoped.

Some private economists found the reports a mixed blessing, and the Commerce Department conceded that without an abnormal 7.1% surge in auto sales--caused primarily by cut-rate financing deals offered by the auto industry--retail sales would have increased a scant 0.4%.

Similarly, the Federal Reserve Board reported that the modest increase in industrial production was partly undercut by a revision lowering that index for the three previous months to show no gain at all in May and July and a 0.3% increase in June.

President Reagan hailed the sales and price figures, combined with recent news that unemployment in August fell to its lowest point in more than five years, as “further evidence of the miraculous powers of American enterprise.”

‘Unleash’ Growth

He called on Congress to support his policies on budget cutting, free trade and tax revision so “we can reach our goal: We can unleash a decade of growth and create 10 million new jobs in the next four years.”

Beryl W. Sprinkel, chairman of the President’s Council of Economic Advisers, told reporters at a news briefing that he regards the August economic reports as “more and more supportive of our expectations for renewed economic strength during the second half of this year.”

But he cautioned that, “as the economy emerges, as it’s now doing, from a period of slower growth, the economic statistics may remain mixed for a while--that is, not every number will be wholeheartedly positive news, as it has been of late.”

The most positive report Friday, that on consumer spending, showed retail sales reaching a record $116.1 billion in August, an 8.1% gain over the previous year. Department store sales rose a strong 3.3%, and specialty clothing stores, gasoline stations and drugstores posted smaller increases.

‘Best Data’ in Months

Allen Sinai, chief economist of Shearson Lehman Bros., concluded that the combination of strong consumer spending, lower wholesale prices and marginally higher industrial production added up to “the best data in many months--you can’t ask for more than that.”

But, he noted that “there is certainly something transitory” in the unusual late August boom in car sales.

Sinai further worried that the decrease in wholesale prices, credited to falling food and fuel costs, reflected deflation caused by decreasing demand--a theme taken up by other economists.

Robert Gough, an economist with Data Resources of Lexington, Mass., agreed that the Labor Department’s price index “looks like very good news” to consumers. “But it is also an indication that markets are softening,” he added.

Financial Problems Feared

And Robert F. Wescott, an analyst with Wharton Econometrics in Philadelphia, said: “The report on prices is beginning to be almost deflationary, and that’s bad news . . . . A lot more of this, and we’ll start having some financial system problems.”

For that reason, both Gough and Wescott were skeptical about the strong retail sales figures and the slight increase in production.

“Autos were gangbusters, but everything else is in summer doldrums,” Wescott said. But he conceded that there is a good chance car sales will be strong this month as well and help push the economy to an annual growth rate of 3% to 3.5% in the current quarter.

Gough, much less sanguine, dismissed the August reports as “good numbers creating false hopes.” The car sales boom, he said, means merely that “Detroit can only compete successfully against imports through a discount scheme.” He predicted that sales would drop off after the end of this month, leading to another production slowdown in the last three months of the year.

Sales Figures Discounted

Jerry J. Jasinowski, chief economist for the National Assn. of Manufacturers, also discounted the strong sales figures caused by the bulge in car sales and cautioned about falling wholesale prices.

Moreover, he noted that, “while industrial production picked up in August, this must be taken with a caveat that the growth rates for previous months were revised downward, with the result that, on average, industrial activity is still sluggish.”