Retail Sales in August Drop by 0.2% : Economists Welcome Decline as Easing Inflationary Pressure

Retail sales, dragged down by the sharpest drop in auto sales in 10 months, declined 0.2% in August, only the second decline this year, the government said today.

The Commerce Department said that sales dropped $330 million to a seasonally adjusted $133.5 billion.

Most economists had been both expecting and hoping for the slight decline, taking it as evidence that growth in consumer demand has slowed, thus easing inflationary pressures in the economy.

It was the first overall decline in sales since April’s 0.4% drop and followed a revised 0.1% gain in July, which had originally been estimated at a stronger 0.5%.

Auto Sales Off

Auto sales fell 1.8% in August to a seasonally adjusted $29.1 billion. It was the sharpest decline in this volatile category since October.

Excluding autos, sales last month rose a modest 0.2% after a slight 0.1% gain in July.

Sales at department and other general merchandise stores were also weak, falling 0.4% in August to $15.1 billion after a 0.1% drop a month earlier.

Analysts say hotter than usual weather in August, along with consumer indifference to new fashions in women’s clothing, held back department store sales.

Sales of durable goods, “big ticket” items expected to last three or more years, were down 1% last month, held back by autos and by a 1.2% drop in furniture sales.

Mortgage Rates Up

Furniture sales had fallen 2.1% in July. Rising mortgage interest rates have cut into home buying and when home sales drop, analysts say, fewer home furnishings are sold.

Sales at building supply, hardware and garden stores were up 0.6% in August.

Sales of non-durable goods were up 0.4% last month despite the decline at department stores.

Food and grocery stores posted a 0.8% gain. Sales were up 1.3% at gasoline stations, 1.1% at drug stores and 0.4% at specialty clothing shops. They declined 0.6% at restaurants and bars.

In a second report providing good news for inflation watchers, the Federal Reserve said the operating rate at the nation’s factories dropped in August for the first time since February, by 0.1 percentage point to 83.8% of capacity.

The rate also dropped in the mining sector, but both declines were offset by a temporary rise in rates at utilities related to the summer heat wave.

Factory operating rates had been creeping higher over the last year, raising concern that prices could rise if manufacturers have trouble producing to meet both the boom in export sales and strong demand from domestic buyers.