Retail sales climbed by just 1 percent last month, and the June sales figures, once thought to have declined only 1.5 percent, actually dropped 3.3 percent, the Commerce Department said yesterday.
The newly estimated sales decrease for June was the largest since January 1967.
Yesterday's figures provide little evidence of the spending boom that President Reagan hoped would be unleashed by the 10 percent cut in individual income tax rates at the beginning of July, analysts said. The government has "revised June down so dramatically that the July figure is less than the old June figure and substantially less than May," economist Otto Eckstein of Data Resources Inc. said yesterday.
However, Commerce Secretary Malcolm Baldrige held out the hope that the tax cut will give the economy a significant boost in coming months. Baldrige said families usually save a large proportion of any sudden increase in take-home pay, before adjusting their spending to the new, higher income.
Eckstein said, "We have three months to see whether the tax cuts will work." The July figures show that "in the first month they didn't," he said. However, Sandra Shaber of Chase Econometrics commented that yesterday's figures were "consistent with the view that we're in the very early stages of a very shallow recovery in the economy in the second half of the year."
Sharp fluctuations in auto sales have had a major impact on the overall sales figures, Commerce chief economist Robert Ortner said yesterday. Auto sales plunged 11.5 percent in June after rebate schemes ended, yesterday's report said. When autos are excluded from the figures, there was a 1.3 percent sales drop in June, followed by a rise of 0.7 percent in July.
The worse-than-expected figure for June likely will lead to a downward revision in the figures for total Gross National Product in the second quarter of the year, Ortner and other economists said. The preliminary figures for the quarter showed a rise of 1.7 percent, figured on an annual basis. Ortner said that as the economy entered the third quarter at a lower level of activity than previously thought, there could be "still another quarter of moderate growth rather than accelerating growth."
Ortner blamed continued high interest rates for the sluggish sales performance. Despite slight drops last month, interest rates remain at historically high levels.
The Commerce report also showed a rise of 1.6 percent in durable goods sales, after a drop of 7.8 percent in June, and an increase of 0.7 percent in nondurable goods sales.
Economists are divided over whether the economy has yet touched bottom, although most agree that the recovery, if and when it comes, will be only sluggish.