Falling Car Sales Drive Down Retail Business a Record 5.8% : Auto Figure Drops 22.4%; Rate Stable Aside From That

Associated Press

Retail sales plummeted a record 5.8% in January as the new tax law took effect and customers deserted auto showrooms to send car sales plunging at their fastest pace ever, the government reported today.

The Commerce Department said the January drop, after a revised 4.6% sales increase in December, included a record 22.4% fall in auto sales.

Car sales had boomed late in 1986 before new tax laws on Jan. 1 ended a provision for deducting state sales taxes from taxable income.

January's plunge was the largest since at least 1967, the government said, which is as far as its modern record-keeping goes. The previous record drop was 5.2% last October.

Car Sales to Blame

Virtually all the January change was in car sales, the government said. Aside from autos, sales were virtually unchanged in January, the government said, declining a mere 0.1%.

At the White House, spokesman Marlin Fitzwater pointed to the controlling role of autos in the sales report and said the record plunge showed no fundamental problem with the economy.

"Virtually all of the economy's vital signs point to a healthy 1987," he said.

Independent economists agreed--to a point. Michael K. Evans of Evans Econometrics Inc. described himself as "cautiously pessimistic" about the numbers.

"Obviously, the figures are not as bad as they seem at face value," Evans said. With autos excluded, he said, "it's not a disaster."

'Situation Actually Good'

David Wyss, chief financial economist for Data Resources Inc. of Lexington, Mass., noted that the serious declines were based on the tax law change.

"The underlying situation is actually good," he said. "The big discretionary items were all pretty strong. . . . That suggests that the consumer was still willing to buy. We're not seeing any backing away."

In dollar terms, the January overall retail sales figure of $119.3 billion was down from $126.6 billion in December.

Auto sales in January totaled $25 billion compared with $32.3 billion in December.

The auto figure also dragged down figures for durable-goods sales, which registered a 14.1% decline for the month.

Except for autos, however, there was little change from December. Among other durable goods, building materials and hardware stores reported sales up 0.5% while furniture and home furnishings stores recorded a 0.9% sales decline.

Nondurable goods registered no sales change overall.

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