Retail sales dragged down by autos

From the Associated Press

Retail sales, hurt by a big drop in auto purchases, slowed at the start of the year, and business inventories turned in the poorest showing in 17 months.

The Commerce Department reported Wednesday that retail sales essentially were flat in January, the poorest performance since a 0.2% decline in October.

Business inventories basically were unchanged in December at $1.37 trillion, $147 million less than in November, the department said. It was the weakest showing for inventories since they fell by 0.4% in July 2005.

The inventory report included a 0.5% drop in stockpiles held by wholesalers. Retailers boosted inventories by 0.3%. That reflected gains in many categories but declines at auto dealers, which still were trying to reduce an overhang of unsold cars. Manufacturers raised inventories by 0.1%.


The latest reports provide fresh figures showing that the economy was not performing as well as previously thought at the turn of the year.

Analysts said the slowdown in retail sales in January was not too worrisome given that it followed a 1.2% surge in December sales.

“With the help of gift cards, consumers kept spending early this year, though maybe not as excessively as they had been,” said Joel Naroff, chief economist at Naroff Economic Advisors.

A string of weaker-than-expected numbers is causing economists to reduce their estimates for overall growth, as measured by the gross domestic product, for the final three months of last year.


They now believe the GDP was growing at an annual rate of just 2.5%, a full percentage point below the government’s initial estimate of 3.5% growth in the final quarter of 2006.

Analysts had expected a gain of 0.3% in retail sales rather than the flat reading. That forecast was based on reports from big chain stores that customers busily redeemed their Christmas gift cards in January and snapped up winter gear with the delayed arrival of frigid weather.

Sales at department stores did show strength during the month. However, that was offset by a 1.3% decline in sales of autos -- the biggest one-month drop since 2.4% in June. Excluding the decline in autos, retail sales managed a 0.3% increase, but this gain was lower than the 0.4% rise that Wall Street expected.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity.


For January, gasoline station receipts fell by 0.7%, reflecting a decline in pump prices. The retail sales numbers are adjusted for normal seasonal variations but they are not adjusted for inflation. Excluding the drop in gasoline sales, retail sales would have risen 0.1%.

Sales at department stores and other general merchandise stores were up a solid 1.3%, the biggest one-month gain in a year.

Sales were also strong at furniture stores, up 0.8%, and hardware stores, which posted a 0.8% gain. Such increases might reflect that the worst of the housing slump is over.

Sales at electronic and appliance stores, which had boomed with Christmas demand, fell by 1.2% in January.