Retail Sales Off Surprising 0.5% in February : Economy: Markets rally on the news, which some say points to a hoped-for slowing and stable interest rates.

Suggesting that consumers are taking a breather from their months-long buying spree, retail sales fell an unexpectedly steep 0.5% in February from January for everything from cars to sofas, the Commerce Department reported Tuesday.

In response, interest rates dropped sharply on the belief that a slowing economy would dissuade the Federal Reserve Board from raising interest rates again. The yield of the bellwether 30-year Treasury bond fell to 7.36% from 7.45%. Stocks also rallied, with the Dow Jones industrial average rising 23.52 points to a record high of 4,048.75.

Some economists blamed the drop in sales--particularly for high-ticket durable goods such as furniture and autos--on higher interest rates or bad weather. But others saw the month-to-month decline--the largest since April, 1994--as one more indicator that the nation’s economy is slowing down as hoped.

“It’s probably just a retrenchment following very strong sales during the fourth quarter of last year,” said Marilyn Schaja, an economist at Donaldson, Lufkin & Jenrette Securities Corp. in New York.

Total retail sales dropped to a seasonally adjusted $192.8 billion after rising strongly in January by a revised 0.6%, the Commerce Department said. But sales remained well ahead of last year’s levels; they were 6% ahead of February, 1994.

A government economist attributed the stronger-than-expected January sales in part to that month’s extra post-Christmas shopping holiday, Jan. 2. The date fell on a Monday, normally a slow day for retail sales.

In February, retail sales were down across the board. Sales of durable goods were off 0.6% from January, and sales of non-durable goods fell 0.5%.

Sales of new cars were off 1%, the largest drop since July.

At Glendale Toyota, general sales manager David Abelson said his dealership’s sales in February were down from the month before. “I’d have to say the rain was a big factor,” he said.

But he added that February’s sales of roughly 70 cars was still better than last year’s 60.

Nationally, retail sales, excluding the traditionally volatile automobile segment, which accounts for about a fifth of total retail sales, were off 0.4%, following a strong 0.8% increase the month before, the Commerce Department reported.

Sales of home furnishings were down 1.2% from January. Economists cited slackening home sales as one reason. Previously, analysts have said home sales slowed because of rising mortgage rates and bad weather.

Sales at general merchandise stores dropped 1.1% after rising 2.3% in January. At apparel stores, sales of clothing dropped 1.2% after falling 0.6% in January.

Minneapolis-based Target Stores saw sales soften at its 627 stores nationally in the first two months of 1995, which is in keeping with the general industry trend, spokeswoman Gail Dorn said.

“Some of that is credited to people spending more at Christmastime and now paying off their bills,” she said.

Still, Target’s total February sales were above last year’s levels by 11%, including sales from new stores. For stores open at least a year, sales were up 3.2% from a year ago, Dorn said.

Economists cautioned against reading too much into the February dip. Other factors, including positive job and personal income figures, indicate that the nation’s economy remains relatively strong.

Moreover, though consumer confidence levels have been dropping since a peak in November, they remain at historically high levels, according to Fabian Linden, an economist at the Conference Board in New York.

“This tells me consumers are taking a breather,” said Richard Berner, chief economist at Mellon Bank in Pittsburgh. “The pace of spending has clearly downshifted to a much lower level than at the end of 1994.”

Added Howard Roth, senior economist at Bank of America in Los Angeles: “We’ve had periods like this in the past where retail sales would be weak for three or four (months), only to come back again.”

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U.S. Retail Sales

Seasonally adjusted, in billions of dollars:

Feb. 1995: $192.8

Source: Commerce Department