Aug. prices rose beyond forecasts Unexpected increase in retail sales also rattles bond market

September 15, 1993|By New York Times News Service

WASHINGTON -- Government reports yesterday showed that retail spending and consumer prices were a bit more vigorous in August than had generally been expected, and the bond market promptly seized on the figures as an excuse to sell.

The Commerce Department reported that $173.5 billion passed across retail counters last month, two-tenths of 1 percent more than in July. Merchants racked up their fifth consecutive advance since the late-winter blizzard that crippled much of the East Coast. Much of the gain was in the automotive sector, though less than in July.

Meanwhile, the Labor Department reported that prices at the retail, or consumer, level rose three-tenths of 1 percent. A slowdown in medical inflation and hefty declines in the prices of gasoline and tobacco products were more than offset by increases for clothing, food and shelter.

Although neither set of figures was far from what had been expected, they -- together with modest upward revisions for sales in earlier months -- combined to touch off a selling spree in the bond market that pushed long-term interest rates sharply higher, to 5.97 percent.

"I think the train overshot the station at 6 percent," said Stuart G. Hoffman, chief economist at the PNC Bank in Pittsburgh, referring to the fact that the yield on the 30-year Treasury bond had tumbled to 5.86 percent last Wednesday.

John R. Williams, chief economist for Bankers Trust Co., said the August rise in retail sales showed that "the consumer is doing OK in the third quarter" and apparently is more willing to spend than has been suggested by surveys of consumer confidence.

Indeed, a related report from the Labor Department yesterday showed that average weekly earnings jumped eight-tenths of 1 percent last month after adjustment for inflation and seasonal variation. This resulted from a longer workweek and higher XTC hourly earnings, partly offset by a small rise in prices.

Retail sales, which account for one-third of the entire economy, continued to show considerably more strength in big-ticket, long-lasting goods like lawn mowers than in perishables like restaurant meals. For August, in fact, durable goods jumped six-tenths of 1 percent, to account for the entire sales gain.

Economists suggested that at a time of insecurity about jobs, interest rates have fallen low enough to induce consumers to make commitments for expensive goods.

Automotive dealers enjoyed a seven-tenths of 1 percent rise in receipts last month. Merchants who sell building materials, hardware, garden supplies and mobile homes gained 1.8 percent -- with the help of demand due to rebuilding from Midwest floods.

Sales of furniture and other equipment for the home, on the other hand, fell 1.7 percent, the Commerce Department report showed.

Excluding the automotive sector, retail sales edged up 1 percent last month, after having been unchanged in July.

So far this year, sales of durable goods are running 12.1 percent above the 1992 pace, compared with a 3.1 percent gain for nondurables.

"It's not bad -- but it could be better," Lawrence Lindsey, a Federal Reserve Board governor, said of yesterday's inflation figures. Many analysts expect the central bank to make no overt shift when its chief policy body meets next Tuesday, but to abandon its inclination to tighten in favor of neutrality.

For the first eight months of this year, consumer inflation is

running at a pace of 2.9 percent, the same as the annual increase in 1992.

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