Retail Sales Slump, But ...

A sharp falloff in auto sales drove retail sales lower in January, the Commerce Department said Thursday.

But sales outside the auto sector rose at the fastest rate in more than two years.

Overall, retail sales fell 0.9 percent to $306.6 billion, erasing about half of December's upwardly revised 2 percent gain.

Auto sales fell 7.5 percent in January, the biggest decline since November 2001. Excluding autos, retail sales rose 1.3 percent, the strongest gain in 28 months.

Gasoline sales rose 2.7 percent. Consumer durables were weak, but most other sectors, including clothing, drugs, food and building materials, were healthy.

Separately, the Labor Department reported that new claims for unemployment benefits last week dropped by 18,000 to 377,000, a four-week low. The report suggested that the pace of layoffs is stabilizing, welcome news for workers worried about keeping their jobs.

The Federal Reserve last month decided to leave a key interest rate at a 41-year low of 1.25 percent, with the hope that will encourage consumers and businesses to spend and invest more and help along the recovery.

One of the main forces holding back the recovery is the wariness of businesses to make big commitments in hiring and in capital spending, given worries about a possible war with Iraq, tensions with North Korea and other economic uncertainties.

Fed Chairman Alan Greenspan told Congress this week that he was hopeful that once such "geopolitical" uncertainties lift businesses would be much more willing to step up capital investment and hiring, forces that would boost economic growth.

Against that backdrop, Greenspan said that President Bush's new 10-year, $1.3 trillion tax-cut package isn't needed right now to stimulate the economy, dealing a blow to the president's efforts to sell the plan to Congress.

In the face of projections for record high federal budget deficits this year and next, Greenspan also said that any new tax cuts should be paid for by either raising other taxes or cutting spending, a position that clashes with the administration's.

Greenspan said that if geopolitical uncertainties do lift and businesses remain reluctant to quicken their operating pace — which would signal a deeper problem within the economy — then other monetary or fiscal policy actions may be warranted.