Retail Sales Off a Record 3.3% in October

Retail sales plummeted a record 3.3% in October as a big drop in auto purchases offset modest gains elsewhere, the government reported Thursday.

While the steep decline could mean slower economic growth, the public is likely to benefit from pre-Christmas price cutting as retailers try to prop up sagging sales in coming weeks, some economists predicted.

The Commerce Department report said retail sales totaled $115.5 billion in October, a $3.9-billion decline from the September level.

Sales had risen 2.1% in September and 2.2% in August as consumers went on an auto-buying spree fueled by attractive cut-rate financing offers. With most incentives dropped in October, auto sales plummeted a record 14.6%.

Initial reports have shown that auto sales showed further weakness in early November.

Without the big decline in autos, retail sales would have been up a modest 0.5% in October, a rise that failed to impress many analysts.

“These numbers are consistent with the general trend of very slow growth in consumer spending and the economy overall,” said Lawrence Chimerine, head of Chase Econometrics.

Chimerine said that gains in personal income have been weak for the past year, reflecting wage cutbacks and loss of high-paying manufacturing jobs. He said this slow income growth is also coming at a time when personal savings have fallen to a record low and the consumer’s debt burden is at an all-time high.

“When you put all this together, consumers just don’t have the wherewithal to increase their spending more rapidly,” he said.

He said retailers would probably have only modest increases in sales this Christmas.

Michael Evans, head of Evans Economics, predicted that retail sales would go down again in November, in part because Thanksgiving is coming a week later than normal, cutting into the Christmas sales season. He said weak sales would spur retailers to offer discounts before Christmas, instead of afterward, so that they will not be caught with huge unsold inventories.

“Stores will panic in December, and we will see the same type of promotions we have had the last couple of years,” Evans said. The price cutting is not likely to start as early as it did last year, he said, because stores have boosted inventories by only about 10% this Christmas season, compared to a 25% inventory increase last year.

“It will still be a time when procrastinators will come out ahead” in getting bargains, he said.

While the Reagan Administration is predicting that the moderate rebound in economic growth from July through September will intensify this quarter, Commerce Secretary Malcolm Baldrige conceded Thursday that the gains will have to come without a boost from consumers.

“Strong gains in household spending since the beginning of the year cut the savings rate to historically low levels, while debt relative to income has risen to new peaks,” he said in a statement. “As a result, we should see temporarily slower growth in household spending.”

Richard Rahn, chief economist for the U.S. Chamber of Commerce, was more optimistic, predicting that Christmas sales would reach $30.2 billion this year, $2 billion ahead of last year’s pace, reflecting spending of $507.52 for a typical family of four.

The percentage of consumer debt relative to disposable income now stands at an all-time high of 19.2%, while the personal savings rate has fallen to a record low of 1.9%.

The 3.3% October decline in retail sales surpassed the previous record for a one-month drop of 2.2% set in March, 1975, during the bottom of the 1974-75 recession.

The decline came from an 8% drop in the sale of durable goods, which reflected the fall in auto sales, and a smaller 0.3% decline in the sale of non-durable goods.