Autos Lead Retail Sales Downhill

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Retail sales plunged in August by the largest amount in nearly four years. The Commerce Department reported Wednesday that total sales fell by 2.1 percent last month, double the decline that analysts had been expecting.

Still, Mark Zandi of Economy.com, saw optimistic indicators in the figures.

"The top-line number looks bleak, but it's not that way at all. In fact, underneath it all, the numbers look pretty good, and it indicates that the economy, prior to Katrina, was doing well," he told CBS Radio News.

The weakness came from a big 12 percent drop in sales of autos. Excluding autos, retail sales rose 1 percent, but much of that strength reflected a rise in gasoline prices.

"If you strip out vehicle sales and the effects of higher gasoline prices, underlying retail sales growth during the month was actually quite sturdy," Zandi said.

Also Wednesday, the Federal Reserve reported that industrial output rose a tiny 0.1 percent last month — far below economists' expectations — as Katrina, which struck the Gulf Coast on Aug. 28, forced sharp cutbacks in oil and natural gas extraction in the Gulf of Mexico and also depressed output at refineries and chemical plants in the areas hit by the hurricane.

Economists believe that Katrina, the worst natural disaster to hit the United States, could trim economic growth by a full percentage point in the second half of the year as soaring gasoline prices force consumers to cut back spending in other areas.

"We need to watch these retailing numbers in the next few months to glean signs of whether Katrina really was a significant hit to the U.S. economy," said Zandi.

The 2.1 percent drop in total sales last month was the largest decline since a 2.9 percent plunge in November 2001, the period following the 2001 terrorist attacks.

The worry is that consumer confidence could be jolted this time around by soaring energy prices and an expected wave of Katrina-related job layoffs.

The Congressional Budget Office last week predicted that Katrina will reduce employment by 400,000 this year although it forecast that rebuilding needs in the devastated Gulf Coast area could increase economic activity next year.

The International Council of Shopping Centers reported Tuesday that sales at chain stores fell by 0.2 percent last week as higher gasoline prices forced cutbacks in other areas of spending.

The biggest increase in spending in August occurred at service stations, a 4.4 percent increase that reflected gasoline prices that have soared past $3 per gallon in many parts of the country.

Without the big jump in spending at gasoline stations, retail sales would have fallen an even bigger 2.8 percent last month as demand faltered in many sectors.

Sales at clothing stores were flat last month, unable to show any improvement after a sharp 0.9 percent decline in July.

Sales at department stores posted a modest 0.3 percent gain after having declined by 0.2 percent in July.

Furniture stores, reflecting the continued boom in the housing sector, posted a 0.9 percent increase in August, however, while sales at electronics and appliance stores rose by 0.3 percent.

The 12 percent decline in auto sales followed 6.3 percent surge in sales in July, reflecting attractive sales incentives being offered to unload a stockpile of unsold cars.

Meanwhile, Katrina victims who thought they were financially secure must keep their debt in check while facing huge relocation costs and uncertainty about their income.

Jim Donahue, an MBNA spokesman, acknowledged that some people will take on more debt than they can repay. He said it was too early to tell what the credit card company would do then.

Rhonda Bentz, a spokeswoman for Visa USA Inc., said most banks that issue Visa cards are expected to offer more lenient terms to hurricane victims.

"People in a crisis are not thinking clearly. Their emotions take over, and that's not a good place to be when it comes to your finances," said Deb Outlaw, a CPA and financial planner in Dallas.
  • Lloyd Vries

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