Retail Sales Slip as Auto Demand Weakens

Retail sales fell 0.3% in January -- the weakest showing in five months -- as a big drop in demand for cars offset strength at clothing and department stores. Spending was powered mostly by consumers eager to use holiday gift cards.

The Commerce Department reported Tuesday that last month’s decline in retail sales followed a 1.1% surge in December. Both months were heavily influenced by a swing in activity at auto showrooms.

In January, car sales fell 3.3%, the biggest decline since June. Car sales had surged 4% in December as buyers flocked to showrooms to take advantage of attractive incentive offers.

Excluding auto sales, retail sales rose 0.6% in January, twice what analysts had been expecting, after sales excluding autos had risen 0.3% in December.

Consumer spending, which accounts for two-thirds of total economic activity, is expected to remain solid this year but grow at a slightly slower pace than in 2004, reflecting in part expectations that activity will cool as the Federal Reserve keeps pushing up interest rates.

Sheryl King, an economist at Merrill Lynch in New York, said the retail sales activity “reaffirmed our view that consumer spending growth in the first quarter will be considerably slower” than in the final three months of last year.

Meanwhile, the National Assn. of Realtors reported sizable increases in home prices around the country for the final three months of 2004. The group’s survey showed a record 62 areas posting double-digit increases in the median price of homes sold in the fourth quarter when compared with the same period in 2003.

The gains were led by a 47.3% jump in Las Vegas, which pushed the median price of a home there to $281,400. Nationally, the median price -- the point at which half sold for more and half for less -- of an existing home rose 8.8% to $187,500 in the fourth quarter.

In other economic news, the Commerce Department reported that inventories held by businesses on shelves and back lots rose 0.2% in December, a sharp slowdown from a 1.1% rise in inventories in November.

The slowdown reflected in part a big 1% jump in total business sales in December, a month when auto dealers brought back attractive incentive offers to reduce their overhang of unsold cars. This effort helped push down inventories of autos and auto parts 1.2% in December.

For the entire year, business sales rose a record 10.6%, more than double the 4.3% gain turned in during 2003. The sales increase was led by a record 13.8% jump in sales by wholesalers and a record 10.8% increase in sales by U.S. manufacturers. Sales at the retail level were up 7.8%.