Auto Incentives Drive September Retail Sales Higher, Prices Lower
Clearances of 1985 model year autos helped drive retail sales up sharply and prices of manufactured goods down in September, but other sectors of the economy did not share much in the good news, the government reported in seasonally adjusted figures released Friday.
According to the Labor and Commerce departments, September retail sales rose 2.7%, the biggest monthly gain since April, while average prices for finished goods declined by 0.6%. Booming auto sales helped by cut-rate financing deals--the average passenger-car price dropped 3.8% from the previous month on a seasonally adjusted basis--were largely responsible for both trends, economists said, although food and energy prices also declined slightly.
However, when auto sales are excluded from the figures, overall retail sales rose a tiny 0.6%, compared to 1% in August.
Most economic forecasters said Friday’s figures signal slow but stable economic growth and low inflation in the next several months. More specifically, they called the reports good news for consumers but more worrisome for merchants, who now must plan for the make-or-break Christmas season in the face of stagnant sales and flat prices.
Early Christmas Sales
“I think it’ll be well before Thanksgiving this year that we hear the jingle-bell of the cash register,” said David Ernst, vice president of Evans Economics, a Washington forecasting firm. “Retailers will start their Christmas sales early--like maybe tomorrow.”
Gordon Richards, the National Assn. of Manufacturers’ chief economic analyst, said the dropping price figures had “very little significance” because they were influenced by auto makers’ once-a-year close-outs. But he said other long-term influences, such as the disarray among Arab oil producing states and the growing world surplus of petroleum, will keep prices for energy and some goods low and will temper inflation in the next year.
The Commerce Department said the 2.7% rise for the month in adjusted retail sales, to a record $120.2 billion, was led by a 9.6% leap in the sales of durable goods, including autos. Non-durable sales--such as food and gasoline--were basically unchanged from August. The overall gain was the largest since a 3.1% increase in April.
But to forecasters, the data on prices was more interesting and, to some, troubling.
Prices for finished goods dropped for the third time in four months and have risen a minuscule 0.2% in the last year. The decline was led by autos, with a 3.8% drop, but processed food prices fell 0.9%, refined energy prices declined 0.1% and capital equipment fell 0.6%.
Concern Over Deflation
The price index for crude materials--such as sand and gravel, farm animals and cotton--fell for the 10th straight month to a level 10.4% below that of a year ago. Prices for intermediate goods, such as factory supplies, were unchanged.
Although individual price declines were not huge, some experts said, the breadth of the drop--covering much of what Americans grow, mine, make and refine--is arresting. The continuing decline in many prices could indicate that the economy is moving toward a potentially dangerous bout of deflation, said Deborah Allen Olivier, president of Claremont Economics Institute in Claremont, Calif.
“What we’re seeing is a whole lot of goods coming out of the woodwork--almost a flood of supply in the market,” Olivier said. “And this probably has another couple of years to go. The majority of the companies we deal with are planning the same thing, but they’re only in the talking-about-it stage.”
The round of sell-offs goes beyond farmland, oil and other cheaper goods to such properties as office buildings and entire divisions of corporations that “used to be profitable in the high inflation days but aren’t now,” she said.
“It’s good that it’s getting us through a stage of adjusting to lower overall inflation, because to make that adjustment you have to sell off a lot,” Olivier said. But the prospect of a deflationary spiral in which prices continue to plummet, she said, “is a danger, and a real one.”
Olivier and others noted that some key economic actions usually linked to inflation have failed to cause a rise in prices this year.
