Retail Sales Dip Unexpected 1.2 Percent

WASHINGTON – Consumers -- the lifeblood of the economy -- sharply cut back on their spending in September, driving down sales at the nation's retailers by 1.2 percent, the largest drop in 10 months.

The Commerce Department's report Friday sent a trouble sign for the struggling economic recovery, raising new questions about consumers' willingness to spend in the months ahead, including the holiday shopping season.

Consumers, whose spending accounts for two-thirds of all economic activity in the United States, have been the main source of power for the economy and their behavior will shape the recovery. The pullback in September reflected consumers' skittishness about a possible war with Iraq, the rollercoaster stock market and a sluggish jobs market, economists say.

The 1.2 percent decline in retail sales in September -- the largest drop since November -- followed a solid 0.6 percent rise in August. September's sales decline was roughly twice as big as many analysts were forecasting.

Much of September's weakness came from a 4.8 percent drop in automobile sales. Economists predicted that booming auto sales, stoked by free-financing offers and other incentives, would not be able to maintain such brisk activity and would eventually slow. In August, sales at automobile dealerships rose by 1.5 percent.

Excluding automobile sales, overall retail sales inched up by 0.1 percent in September, slightly weaker than economists expected.

Cautious shoppers trimmed spending in other areas, too.

Sales at furniture and home furnishing stores fell by 0.5 percent in September, a turnaround from a 0.8 percent advance the month before.

At clothing stores, sales fell by 0.9 percent in September, after a 0.3 percent rise. Electronics and appliances stores saw sales dip by 0.3 percent, erasing a 0.3 percent gain in August.

People ate out less, sending sales at bars and restaurants down by 0.4 percent in September, following a 0.2 percent increase. At food stores, sales fell by 0.4 percent, on top of a 0.2 percent decline.

General merchandise stores, including department stores, saw sales dip by 0.1 percent, following a 0.5 percent increase. Sales at gasoline stations were flat, after falling by 0.7 percent in August.

There were some bright spots in the report. Sales of building and garden supplies rose 1.8 percent, on top of a 0.7 percent gain in August. For health and beauty products, sales went up 1.5 percent, up from a 0.6 percent increase. And, sales at sporting goods, books and music stores grew by 1.5 percent for the second month in a row.

Friday's report was consistent with reports from the nation's largest retailers on Thursday that September's sales were anemic.

Worried about the pace of the economic recovery, the Federal Reserve -- over the objections of two members -- decided to hold short-term interest rate steady at 41-year lows last month. The two dissenters favored a rate cut, the first of the year.

Economists offered mixed opinions on whether the Fed will cut rates at its next meeting in November.

By keeping rates low or possibly nudging them down, Fed policy-makers hope to spur consumers and businesses to spend and invest more, boosting economic growth.