Retail Sales Fall 0.3% in January; Confidence Up

Terrible weather and tight wallets added a further burden to an already-weak economy, and retail sales fell 0.3% in January, the worst performance in six months.

While the retailing report’s release Tuesday sparked Republican talk of a Clinton recession, private economists took heart that the sales decline wasn’t bigger. They also noted a second report showing consumer confidence making a comeback in February.

As so often happens, the prospect of faster economic growth sent a shudder through financial markets, which are always on the lookout for higher inflation. Demand for Treasury bonds and stocks both fell. The Dow Jones industrial average ended the day down 15.89 points at 5,549.21 after dropping 65.39 on Monday.

Wall Street’s jitters Tuesday came despite a report on wholesale price pressures that showed only a 0.3% rise in January, a substantial moderation after December’s 0.6% increase.

Elliott Platt, chief economist at Donaldson, Lufkin & Jenrette, called the January price report “far better than anticipated” and said it shows there are no price pressures in the pipeline.

Analysts said today’s report on prices at the retail level should show moderation similar to that of the wholesale index.

Many economists said they still believed the benign news on inflation will allow the Federal Reserve Board to cut interest rates further. The central bank has trimmed a key rate three times since July, and many economists predict another quarter-point cut in May and perhaps a fifth reduction in June.

But they said that should be it for Fed credit easing if the economy, as expected, shakes off its current doldrums.

“I believe the Fed will cut again as a way to buy a little insurance, but the notion that the central bank will cut a lot more is now off the table,” said Allen Sinai, chief global economist at Lehman Bros.

Analysts noted that the Conference Board index on consumer confidence about the economy, which had taken a nose dive in January, rebounded in February, rising from 88.4 to 97.0.

House Speaker Newt Gingrich (R-Ga.) told reporters Tuesday that he is concerned about a possible recession and believes tax cuts are needed to ward off a downturn.

Some analysts noted tentative signs that consumer spending has strengthened in February and expressed the hope that weather-delayed purchases might actually boost growth in coming months.

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Retail Sales

In billions of dollars, seasonally adjusted:

Jan. 1996: 199.1

Source: Commerce Department

Consumer Confidence

From a monthly survey of 5,000 households. 1985=100

Feb. 1996: 97.0

Source: Conference Board