Retail Sales Up Record 4.6% in Sept. : Without 19.5% Surge in Car Purchases, Rise Would Be Only 0.1%

An explosion of incentive-backed car buying powered a 4.6% rise in retail sales in September, the largest month-to-month increase since the Commerce Department began tracking consumer spending in 1967, the government said today.

Over-the-counter sales were valued at $127.18 billion after seasonal adjustment, up from $121.57 billion in August, the Census Bureau said.

The dramatic showing was due almost entirely to the biggest monthly surge in auto sales in 15 years--a 19.5% increase fueled by unusually low dealer-incentive financing. That gain was last exceeded in January, 1971, when auto sales rose 20.2%.

0.1% Without Vehicles

If the surge in auto and motor vehicle sales is excluded from the index, retailers saw sales rise by a scant 0.1% in September.

With consumers spending their time shopping for cars, they actually cut back on department store purchases, which dropped 1.4% in September following a 1.6% August increase.

The overall monthly increase broke a previous record of 4% set in May, 1975, and followed upwardly revised gains of 1.5% in August and 0.3% in July.

“Consumer spending was the driving force in the third-quarter economy,” said Allen Sinai, chief economist with Shearson Lehman Bros. in New York. “The revisions in July and August indicate strength not only in autos, but in other areas as well.

3% Growth Predicted

“The fix of strong spending will reverberate through the economy on the production side,” Sinai said, predicting that the U.S. economy will grow by around 3% at an annual rate in the third quarter. The forecasting firm had previously projected 2.4% growth in the July-September period.

Sinai said that he expects consumers to “retrench” in the fourth quarter, but that manufacturers will use third-quarter earnings to expand inventories, keeping the economy on a reasonably strong growth path.

“Some improvement” in the trade balance should also help keep the economy from slowing down, he said.

Consumer spending has been the driving force behind the current economic recovery, but some analysts have grown concerned that rising levels of personal debt may force Americans to cut back on purchases in coming months.

Confidence Believed High

The GNP, which rose by a sluggish 2.2% at an annual rate in the first half, must rise by 4.2% in the second half to meet the White House target of 3.2% growth for the year as a whole.

Commerce Secretary Malcolm Baldrige, noting that auto sales “slipped” in October following the removal of most dealer incentives, said that he believes consumer confidence remains strong and that “consumers should continue to support the expansion, which is about to enter its fifth year.”

Sales of durable goods, with an average life of three years or longer, rose by a strong 11.9% last month, 16% above the year-ago level.

Non-durable goods sales declined by 0.1% in September to just 2.1% above the September, 1985, level.