Auto Slump Blamed for Retail Sales Drop

Another month of sluggish automotive sales caused retail sales to fall by 0.9% in February to $146.5 billion, the Commerce Department reported today.

The decline was the biggest since a drop of 1.3% in October.

Some analysts were pleased by the report, but Irwin Kellner, chief economist for Manufacturers Hanover in New York, said the 0.9% decline “shows an underlying weakness in the economy that should not be ignored.”

If the 6% drop in automotive sales--the biggest since a 26.5% plunge in January, 1987--was not figured in, total sales of all other goods to consumers would have increased by only 0.5% in February, officials said.

“It’s a sign that we are teetering on the edge of a recession,” Kellner said. “What makes it even more alarming are the markets have talked about the need for higher interest rates.

“This report suggests the recipe for continued economic growth is lower interest rates.”

But Robert Dederick, chief economist for Northern Trust in Chicago, was much more optimistic.

“It’s a strong report,” Dederick said. “There doesn’t seem to be any sign that the consumer believes there is going to be a recession, and consequently that reduces the risks there will be a recession.”

Added forecaster William MacReynolds of the U.S. Chamber of Commerce: “True, automobile sales fell, but almost all other sectors experienced nice increases.”

Auto dealers have been hit hard by sluggish sales over the past several months, and they turned to rebates and other discounts to clear their lots in December and January.

Sales of durable goods, items made to last three or more years, were down by 0.3% last month to $54.8 billion, while the sales of non-durable goods were up by 0.4% to $91.7 billion, the department’s Census Bureau said in its monthly report.

The 0.9% decline in total retail sales for February compared with a surge of 2.8% in January after a decline of 0.3% in December.

In other categories during February, retail sales of building materials, hardware and garden supplies increased by 1.4%, and sales of furniture and home furnishings were up 0.5%. Sales at department stores increased by 2%, while sales at food stores were up 0.5%.

Gasoline stations, meanwhile, saw sales decline by 0.8% in February, and drug stores also reported a 0.8% decline in business, the department said.

But February retail sales increased by 1.6% at clothing stores, while restaurants and bars reported a 1.4% advance in sales.