Retail Sales and Confidence Fall

U.S. consumers stopped buying new cars at such a furious pace last month, causing overall retail sales to fall by the largest fraction in nearly a year, the Commerce Department reported Friday.

Economic optimists sought to put the best face on the sales decline, saying that such key determinants as income and interest rates favor a continuation of the national spending spree.

But most analysts said the drop may signal that consumers, who have kept the economy afloat with spending, are finally retreating in the face of steep stock losses, an uncertain job market and growing fears about war and terrorism.

“For the economy, the war is already here,” said John E. Silvia, chief economist with Wachovia Corp.

The latest retail sales figures show consumers will buy only when enticed by “the most generous of price incentives,” he said.

The Commerce Department said U.S. retail sales dropped 1.2% to $302.46 billion in September, the steepest decline since November in the aftermath of last year’s terrorist attacks.

Excluding cars, retail sales rose 0.1% in September, after a 0.3% gain in August, according to the department. But analysts said that the increase was small and that the sales weakness during the month extended well beyond the auto showroom to discounters, department stores and furniture outlets.

Auto sales sank 4.8% in September after rising wildly over the summer. Analysts traced most of the decline to a decision by some carmakers to end no-interest financing. On Thursday, General Motors Corp. announced more come-ons: Besides no-interest financing, the firm said buyers can purchase a car for no money down and no payment for 90 days.

Retail sales are an important bellwether because consumption accounts for two-thirds of U.S. economic activity. Economists have lavished increasing attention on them because the consumer has been one of the few bright spots.

Consumers defied the odds and kept on buying in the two years since the stock market began cratering. But there are growing signs they are losing their will.

The University of Michigan’s consumer sentiment index for the first two weeks of October fell from 86.1 to 80.4, its lowest level since September 1993. The index numbers suggest that people have doubts about the immediate situation and conditions six months from now.

The index of current conditions fell from 95.8 to 92.8, and the index of future expectations tumbled from 79.9 to 72.2. Analysts believe the economy grew at a spirited 3.5% to 4% annual pace in the third quarter because of strong consumer spending in July and August. But most analysts predict that growth will slow to a 2.5% rate in the current quarter.

In another report Friday, the government said wholesale prices barely rose in September, adding to evidence that inflation is absent from the economy.

The Labor Department’s producer price index inched up 0.1% last month after an unchanged reading in August.

The closely watched “core” PPI, which strips out volatile food and energy costs, also rose 0.1% in September after a 0.1% drop. The latest readings matched forecasts, and could slow more if consumers cut back spending further.

Reuters was used in compiling this report.