Retail sales rise, but more slowly than expected Cautious shopping suggests inflation is staying in check

February 14, 1997|By BLOOMBERG NEWS

WASHINGTON -- U.S. retail sales rose at a slower-than-expected pace last month, the government reported yesterday, in a sign that the economy is unlikely to repeat the fourth quarter's rapid growth early this year and inflation remains in check.

January retail sales rose 0.6 percent after increasing a revised -- and tamer -- 0.3 percent in December, Commerce Department figures showed. The government initially estimated that December sales rose 0.6 percent. Analysts had expected a 0.7 percent January gain.

"Consumers are spending but spending cautiously and not excessively," said Bruce Steinberg, an economist at Merrill Lynch & Co. in New York.

The news suggests that the Federal Reserve will continue to hold interest rates steady, Steinberg said.

The subdued retail sales report echoes some of the "gloom and doom" reports from retailers during the holidays, said Raymond Worseck, chief economist at A. G. Edwards & Co. in St. Louis. Worseck said the economy will probably grow by 2 percent during the current quarter, down from the preliminary estimate of 4.7 percent growth in the final three months of last year.

A jump in car sales boosted the January retail report, and analysts said they didn't expect that to continue. If autos are excluded, sales increased a 0.4 percent last month.

Analysts had expected sales excluding autos to rise 0.6 percent. Nonauto sales were unchanged in December from November's level.

With December retail sales now appearing to have been less vigorous than previously reported, analysts expect the government to cut its fourth-quarter estimate of gross domestic product growth to as low as 4 percent. The next GDP report will be released Feb. 28.

And, if the pattern of slower growth in retail sales persists, the Fed will likely continue to see no imminent inflation danger in the economy -- and refrain from raising interest rates at its March 25 policy session, said Robert Dederick, an economic consultant at the Northern Trust Co. in Chicago.

That's because consumer spending accounts for two-thirds of overall economic activity. Fed policymakers left the overnight lending rate for loans between banks unchanged at 5.25 percent last week.

"We're going to have a six-year birthday party for this expansion next month. All the pent-up demand was satisfied three or four years ago," A. G. Edwards' Worseck said. "This is moderate economic growth. It's not a boom economy."

Pub Date: 2/14/97

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