Retail Sales, Producer Prices Rise in August

WASHINGTON —  The U.S. economy continued to hum along last month as consumers stepped up their spending at the nation’s retail outlets, particularly at auto dealers, while inflation remained under tight control, according to two government reports released Friday.

The Commerce Department said retail sales rose 0.4%, to $213.7 billion in August, the third consecutive monthly gain. However, that was a smaller increase than in June or July--which was revised upward in Friday’s report to show a 0.9% gain--and was consistent with an overall pattern of moderate, noninflationary economic growth, a number of analysts said.

Meanwhile, the Labor Department said that prices charged by producers when they first sell a completed item rose 0.3% last month after an unprecedented string of seven straight monthly declines. The increase, which followed a cumulative drop of almost 2% in the producer price index in the January-July period, was largely the result of a jump in energy prices, some of which has already been reversed.

Over the last 12 months, producer prices for finished goods were down 0.2%. Excluding volatile food and energy prices, the so-called core PPI rose 0.1% in August and was unchanged from August of last year.

Economists at Donaldson, Lufkin & Jenrette, a New York brokerage firm, called it “another phenomenal inflation report.” The increases in both sales and prices were smaller than many financial analysts had expected, and the reports triggered a rally in the bond market as investors apparently decided the figures made it less likely that the Federal Reserve Board would raise interest rates in coming weeks. The Dow Jones industrial average also rose.

Many Wall Street analysts and traders had been worried that the retail sales report would indicate so much strength that Fed officials might respond by raising short-term rates at their next policymaking session Sept. 30. Now the market’s focus on the Fed has shifted to the subsequent meeting on Nov. 12.

“People thought we would see a very strong surge that the Fed could not ignore,” said economist James Glassman of Chase Securities Inc. in New York. “Beyond car sales, we’re seeing consumer spending picking up to a more normal pace than in the spring, but certainly not a threatening one.

“Consumer spending is important to the Fed, but it is not the entire picture. If you understand what is going on in the auto industry, it is not an inflation threat.”

In an interview on cable-TV channel MSNBC, Fed Gov. Edward M. Kelley called the U.S. economy “remarkably strong,” but he also said inflation is “quite under control.”