Car-Buying Spurt Helps Retail Sales

Buyers look over an unsold 2007 Z4 coupe at a BMW dealership in the south Denver suburb of Littleton, Colo., on Thursday, Sept. 13, 2007. Retail sales posted a modest gain in August, helped by the biggest jump in auto sales in more than a year. But there are concerns that spending could falter as the steep slump in housing and financial market turbulence weigh on consumer confidence. The Commerce Department reported Friday, Sept. 14, 2007 that retail sales increased 0.3 percent in August, compared to July, when sales had been up by 0.5 percent. The strength last month was led by a 2.8 percent jump in auto sales, the biggest increase since July 2006. (AP Photo/David Zalubowski) (David Zalubowski - AP)

"You get as big a decline in housing as we are looking at and that is serious business," Gramley said, who put the odds of a recession at close to 50-50.

Treasury Secretary Henry Paulson said Friday he believed the economy would be able to avert a downturn, in part because the rest of the world is growing at a robust pace, helping to boost U.S. exports. Another government report showed that the deficit in the current account, the broadest measure of trade, shrank in the April-June quarter to $190.8 billion, down 3.1 percent from the first quarter.

Financial markets have been roiled since early August by rising worries that loans to consumers and businesses are becoming harder to obtain as banks and other lenders tighten standards. The credit crunch began with rising defaults on subprime mortgages, home loans provided to borrowers with weak credit. But those problems have since spread to other lending areas and have also roiled global financial markets.

Paulson said there has been "some modest improvement in a number of markets that are under stress" but that the current credit crisis will take some time to unwind.

"The complexity of certain of the products and the fact that we are more integrated into the global economy mean that it is going to take awhile to works our way through this," Paulson said in an interview on CNBC. "I feel very confident this economy is going to continue to grow."

The retail sales performance would have been much weaker without the big gain in auto sales in August. Excluding autos, retail sales would have fallen by 0.4 percent, the poorest showing in nearly a year.

Part of the weakness in August retail sales came from a 2.4 percent drop in revenues at gasoline stations, reflecting declining prices. However, with oil rising to new records above $80 per barrel, analysts predicted that gasoline prices will start rising again, a factor that will mean consumers will have less to spend on other items.

Sales at department and general merchandise stores edged up 0.3 percent in August, reflecting strong back-to-school sales. Sales at furniture stores were up 0.5 percent but hardware stores saw sales decline by 1 percent. Sales at specialty clothing stores dropped by 0.1 percent.

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On the Net:

Retail sales: http://www.census.gov/retail

Industrial production: http://www.federalreserve.gov

Current account: http://www.bea.gov/newsreleases/rels.htm