Retail sales dropped 0.4% in February, the government said Tuesday in a report some analysts read as a sign that consumers are wary of a broader economic slowdown.
Held back by a sharp drop in business at car dealerships, retail sales fell to a seasonally adjusted $138.2 billion last month after rising 0.7% in January when good weather brought out shoppers, the Commerce Department said.
Excluding autos, which account for almost one-fourth of the retail total, sales edged down 0.1% in February after rising 1.4% in January.
Economist John Hagens of the WEFA Group in Bala-Cynwyd, Pa., said that while the economy entered 1989 with strong momentum, consumers may be tightening purse strings in anticipation of slower economic growth or recession.
“A slowing of consumer spending is consistent with the expectation of a recession,” Hagens said. “Consumers are typically very smart. They know these things, often before economists.”
At the White House, press secretary Marlin Fitzwater said: “The bottom line is this: It probably helps offset inflationary fears. There’s still only one month’s figures. January was up so there’s no trend here. The economy is still sound.”
Many analysts expect slower growth in consumer spending this year as rising interest rates start to take their toll, but few had expected February’s decline in retail sales.
The falloff in sales was welcome news to those on Wall Street who have been concerned that the economy is growing too fast to avoid a flare-up of inflation.
But Richard Rahn, chief economist for the U.S. Chamber of Commerce, said the figures should serve as a warning that the Federal Reserve Board’s drive to increase interest rates and restrain economic growth could push the nation into a recession.
“Clearly, the economy is not overheating as some at the Fed fear,” Rahn said. “The real danger is that the Fed is overreacting in raising interest rates . . . and will inadvertently put us into a recession.”
Retail spending is watched as barometer of economic health since it accounts for about one-third of the gross national product.
February’s sales drop was matched by a similar decline in April, 1988, and last was surpassed in October, 1987, when business plunged 0.9%.
Auto sales have been especially weak, dropping 1.7% in both January and February after being virtually unchanged in December.
Analysts attributed the weakness in car sales to the combined effects of a cautious long-term outlook by consumers, higher interest rates, increases in inflation and diminished demand after earlier strong sales spurred by incentive programs.
Economist Michael P. Niemira of Mitsubishi Bank in New York said that excluding autos, February’s retail sales picture probably was not as weak as the overall figures might suggest.
He said the mild weather in January, when business was good, could have spurred some early purchases that otherwise would have occurred during February.
Seasonally adjusted, in billions of dollars. Feb. ’88: $130.4 Jan. ’89: $138.8 Feb. ’89: $138.2
Source: U.S. Dept. of Commerce