Retail sales drop 0.3% in January

Martin Crutsinger

Tuesday, Feb. 15, 2005 | 9:38 a.m.

WASHINGTON -- Retail sales fell 0.3 percent 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 that last month's decline in retail sales followed a huge 1.1 percent surge in December. Both months were heavily influenced by a swing in activity at auto showrooms.

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

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

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

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

The slowdown reflected in part a big 1 percent 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 by 1.2 percent in December.

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

Federal Reserve Chairman Alan Greenspan will deliver the central bank's semi-annual monetary report to Congress on Wednesday, an event being closely followed by financial markets anxious to discern whether the Fed plans to keep raising interest rates at a moderate pace of quarter-point moves in coming months.

The 0.3 percent drop in retail sales in January was the biggest setback since a similar 0.3 percent fall last August.

In addition to the 3.3 percent decline in auto sales, sales at stores specializing in products for the home also suffered setbacks. Sales at appliance and electronic stores were down 0.6 percent while sales at hardware stores dropped by 0.3 percent and furniture store sales dipped 0.1 percent.

Sales at clothing and clothing accessory stores jumped 1.8 percent in January while sales at general merchandise stores, a category that includes department stores, rose by 0.9 percent.

These solid gains were attributed in part to the fact that consumers who received gift cards as Christmas presents chose to redeem them during January clearance sales.

Department store sales were also bolstered by consumers attracted by a fresh assortment of spring clothes, which lured buyers despite late-month snow storms in the Midwest and Northeast.

Sales at restaurants, bars and coffee houses rose by 0.3 percent while grocery store sales were up 0.5 percent.

Sales at gasoline stations were up 1.8 percent in January, after having fallen 0.2 percent in December. Last month's increase reflected in part higher gasoline pump prices.