Retail Sales and Industrial Output Fall
Retail sales fell a full 1% in October, driven down by a slumping auto market, and industrial production dropped 0.7% in its steepest fall in more than three years, the government said Tuesday.
But some analysts said the reports were not as pessimistic as they would appear. They noted that except for autos, most other sales categories rose and that the drop in industrial output was due largely to an aircraft strike and factory disruptions after the Bay Area Quake.
The Commerce Department reported that retail sales dropped to a seasonally adjusted $144.5 billion, the first decline since a 0.4% drop in February. Sales had risen 0.7% in September and 0.9% in August.
But analysts noted that excluding the automobile factor, overall sales actually rose 0.2%.
“Most of the other sectors really did quite well,” said John Silvia, an economist at Kemper Financial Services in Chicago.
Retail sales account for about one-third of the nation’s economic activity and are watched as a sign of the extent to which the Federal Reserve’s policy of fighting inflation by tightening credit is slowing the economy.
“What we’re seeing is fairly steady consumer spending as far as retail sales go and a weak manufacturing sector,” he said, referring to another government report issued Tuesday. “It’s a little bit of a two-tier economy showing up again, similar to what we had earlier in this economic expansion.”
In the other report, the Federal Reserve said industrial production fell 0.7% in October, largely because of the Boeing strike and the California earthquake. It was the sharpest drop since a 1.3% fall in March, 1986.
But even without the strike and earthquake, output would have been unchanged as the manufacturing sector continues to slow in the face of the Fed’s interest rate policies.
The Fed also said the operating rate of the nation’s factories, mines and utilities fell 0.8 percentage point to 82.8% in October. Analysts generally consider an operating rate of 85% or more to be inflationary because it could lead to shortages and thus higher prices.
The decline in retail sales last month was the steepest since a 6.7% drop in January, 1987, largely reflecting a 5.1% plunge in auto sales that were boosted by incentives earlier this year. It was the largest decline in autos sales since a 26.5% drop in January, 1987. Car sales had risen 0.5% in September and 2.2% in August.
David Jones, an economist with Aubrey G. Lanston & Co. in New York, said that while there is weakness in the automobile industry, “it’s unlikely that we’ll see recessionary tendencies in the economy because consumer spending in other areas is holding up.”
Because of the decline in autos, overall sales of durable goods--big ticket items expected to last at least three years--fell 2.7%, their steepest fall since a 2.8% decline in October, 1987.
Durable sales were flat in September after gaining 2% in August. They have been particularly hard hit by the Fed’s interest rate policies because durable goods often are financed by loans.
But except for the auto category, Jones noted, the other durable components were up. Building materials sales rose 0.9% after falling 1.3% in September and advancing 1.7% in August. Furniture and other home furnishing sales edged up 0.3% following a 0.6% drop in September and a 1.6% gain in August.
Sales of nondurable goods edged up 0.1%, following a 1.1% gain in September and a 0.1% decline in August. Categories showing increases were department stores, up 0.3%; grocery stores, up 1%; apparel, up 0.2%, and drugstores, up 1%.
Nondurable categories posting declines were gasoline stations, down 0.9%, and restaurants and bars, off 0.2%.
For the three months from August through October, overall retail sales were up 6.3%. Sales for the first 10 months of 1989 were up 6% over the same period of 1988.
