Retailing Data Could Portend Fed Rate Hike

U.S. consumers spent freely last month, even though burdened by debt, increasing the chances that the Federal Reserve Board will push interest rates higher to forestall inflation.

The Commerce Department’s report Thursday on retail sales, and speculation on how it will be viewed by the central bank, propelled a sharp sell-off in financial markets. The Dow Jones industrial average dropped 160 points, the fifth-steepest point drop on record and the largest since July.

It was one of a grab bag of reports generally depicting a robust economy maintaining its momentum into the spring. The exceptions included one that showed the U.S. trade deficit soaring to its second-worst performance ever.

Fear of a monetary tightening sent interest rates soaring to the highest level in six months.

Retail sales rose 0.8% to a seasonally adjusted $213.2 billion last month after rising 1.5% in January, the Commerce Department said.

Consumer confidence is high, analysts said, because of a vibrant job market. The Labor Department said new claims for unemployment benefits fell by 5,000 last week to 307,000, the lowest level in more than two years. The four-week moving average of claims, at 310,250, was the lowest since 1989.

Ironically, America’s vigor contributed to a sharp deterioration last year in the nation’s current-account deficit, the broadest measure of U.S. foreign trade.

The current-account deficit jumped 11.4% to $165.1 billion in 1996, just short of the all-time high of $167.4 billion set in 1987.

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Retail Sales

Total retail sales in billions of dollars, seasonally adjusted:

February 1997: $213.2

Source: Commerce Department