Department Stores, Auto Dealers Lead 0.8% Sales Increase : Biggest Gains in 4 Months Offset Weaknesses Elsewhere

Retail sales rose 0.8% in August, the biggest advance in four months, as strong sales at department stores and auto dealerships offset weakness elsewhere, the government said Friday.

The Commerce Department reported that sales totaled $120.18 billion in August after revised increases of 0.3% in July and 0.2% in June.

Investors had eagerly awaited Friday’s release of the retail sales numbers. The stock market plunged Thursday largely because of rumors that retail sales would be exceptionally strong, signaling to the Federal Reserve Board that further steps to drive down interest rates were unnecessary. While retail sales growth was not nearly as robust as some had anticipated, the stock market appeared to ignore that fact and continued its dramatic decline.

Sales at department stores, helped by strong demand for back-to-school merchandise, rose 0.7% last month after a 0.6% rise in July.

Auto Dealer Sales Up 3.2%

Sales at auto dealers shot up an even faster 3.2% in August as the return of cut-rate financing offers lured buyers back into showrooms.

Analysts predicted that auto sales would climb even faster in September due to the competition among auto makers to offer the best financing package.

Consumer spending has been the main source of strength for the economy this year, and analysts predicted that this would continue at least through September.

“It looks like consumer spending will be the big force in whatever growth we have in the July-September quarter,” said Allen Sinai, chief economist for Shearson Lehman Bros. He predicted that the economy, as measured by the gross national product, would rise at an annual rate of between 2% and 3% in the third quarter, very similar to the sluggish growth during the first half of the year.

The Reagan Administration, however, is predicting that economic growth will double in the second half of the year, and officials cited the rise in retail sales to bolster this belief.

“With total unemployment now down to only 6.7% and a record 111 million Americans employed, we see more workers able to buy more goods at continued low prices,” presidential spokesman Larry Speakes said.

Other analysts, however, expressed fears that the record level of consumer debt will begin to force reductions in spending. They said economic growth in the last three months of the year will be in jeopardy because of a likely slump in auto sales after the financing incentives are removed.

Without the rise in auto purchases in August, retail sales would have shown no increase for the month as consumer demand outside of cars and department stores was generally lackluster.