Auto Incentives Power a Surge in Retail Sales

Retail sales, powered by the return of attractive auto financing incentives, rose 1.9% in December for the strongest gain in three months, the Commerce Department reported Tuesday.

In another report, the Federal Reserve Board reported that Americans took on $4.88 billion more in consumer debt than they paid off in November, the smallest monthly increase in more than two years.

The strong retail sales advance, coming on the heels of a big rise in employment, prompted the Reagan Administration to proclaim that the economy is enjoying a significant rebound in growth.

However, some private economists said they did not see evidence for such optimism.

The December increase helped boost retail sales for the entire year to $1.38 trillion, 6.3% above 1984.

This boost was substantially below the giant 10.5% gain recorded in 1984, and many analysts have cautioned that retail sales in 1986 are likely to rise at an even slower pace as consumers struggle with a record-high debt burden.

The strength in December came from a 5.7% jump in auto sales from November. The rebound reflected a new round of incentives instituted by General Motors and Ford Motor that included annual financing rates as low as 7.9% on selected cars and trucks.

The 1.9% December rise in overall sales followed a revised 0.7% increase in November and a 3.9% drop in October, a month when car sales plummeted after the first round of cut-rate auto financing was removed.

“All the concern about high debt driving consumers to zip up their wallets and stay home is proving unfounded,” said Sandra Shaber, director of consumer economics for Chase Econometrics. “But people shouldn’t go overboard and think that consumer spending will drive the economy. That isn’t going to happen.”

Expects Sluggish Growth

Shaber said Chase was still expecting sluggish growth of around 1.5% for the first half of the year, less than half the rate in the final six months of 1985.

However, some optimists are calling for growth to top 4% in coming months, the best performance since the first half of 1984.

“The strength of the December retail sales figures, coming on top of the bullish employment figures for December, should mean that we ended 1985 with a bang, not a whimper,” said John Albertine, president of the American Business Conference, a coalition of high-growth companies. “Once again, the consensus (economic) forecast has underestimated the strength of the recovery.”

Albertine predicted that the 3.2% estimate of overall growth in the fourth quarter of 1985 would be revised upward to close to 4% based on the strength in December.

The rise in auto sales in December accounted for more than half of the overall increase in retail sales last month. Without the auto gain, sales would have risen by 0.9%, still the best advance in the non-auto category since August.

Sales at general merchandise stores, a category that includes department stores, rose just 0.3%, down sharply from a 1.7% gain in November.

The strength in autos compensated for some sluggishness, particularly in department store sales, where retailers complained that car purchases had forced consumers to spend less on Christmas presents.

Sales of Durables Jump

For December, sales of durable goods, a category that includes cars and other products expected to last three or more years, rose 4.3%; sales of non-durable goods were up 0.6%.

Sales at hardware stores were up 2.1%, followed by a 2% gain at speciality clothing stores.