Moderate growth, inflation reported

April 14, 1994|By New York Times News Service

WASHINGTON -- Consumers spent carefully in March, Commerce Department figures showed yesterday, strengthening a general belief that economic growth has slowed significantly this year from the furious pace that prevailed in late 1993.

The rise of four-tenths of a percent in retail sales last month, to $182.26 billion, meant that sales in March were slightly lower than those of December, after adjusting for inflation.

"One-third of the economy treaded water in the first quarter," said Irwin L. Kellner, the chief economist for Chemical Bank.

Separately, the government reported that prices paid by consumers for all manner of goods and services climbed three-tenths of a percent for a second straight month.

Inflation in medical care, for which prices rose two-tenths of a percent, was the lowest since 1984.

Taken together, the two sets of figures implied moderating growth of the economy and steady inflation, a combination that would usually be considered reassuring by the securities

markets.

But yesterday, bonds rallied briefly on the retail sales results, which were somewhat weaker than predicted, then reversed course and finished sharply lower, dragging the stock market along.

Although there is still scant evidence of accelerated inflation, the Federal Reserve is not waiting for conclusive proof of such an outbreak and has raised short-term interest rates twice since early February.

Many analysts predict further Fed increases to push real rates -- that is, those adjusted for inflation -- firmly into positive territory after a long period during which they were essentially zero.

Yet judging from the latest soundings, the economy has already slowed significantly from the 7 percent rate of growth it posted in the final three months of last year.

"One would be hard-pressed to call Wednesday's report 'bad,' " said Laurence H. Meyer & Associates, a consulting firm in St. Louis, referring to the retail sales figures.

Yet "it does go hand in hand with the notion that the surge in fourth-quarter consumer spending, which was anchored by auto sales, is beginning to wane, and the momentum is slowly eroding."

Various Federal Reserve officials now doubt consumers' ability, whatever their optimism, to increase spending in light of high debt, lagging wages, record low savings, poor liquidity and tax increases.

"I believe that the household sector poses one of the most serious risks to the continuation of this recovery," Lawrence B. Lindsey, one of five sitting Fed governors, told a Baltimore audience last month.

Indeed, sales of nondurable goods, about 60 percent of retail sales, showed a tiny decline that rounded to no change for March.

There were gains of 1.9 percent for drugstores and variety stores, three-tenths of a percent for clothing stores and two-tenths of a percent for general merchandise stores.

But these were offset by declines of eight-tenths of 1 percent at food stores, of five-tenths of a percent at gasoline stations and of two-tenths of a percent at restaurants and bars.

Sales of durable goods rose 1.1 percent, paced by a 4.1 percent surge for building materials -- a rebound from a comparable drop in February, which was attributed to severe weather.

The inflation report, which was about as predicted, showed consumer prices rose three-tenths of a percent both for the total index and for the so-called core rate of inflation, which excludes the erratic food and energy components.

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