Retail sales, a major contributor to the current economic recovery, dropped 1.4 percent last month, the largest drop since July 1982, the Department of Commerce said yesterday.

The drop was far larger than many economists had expected. Nonetheless, most were not alarmed by the decrease, saying it was probably a temporary phenomenon.

The sharp decline from July sales of a seasonally adjusted $98.8 billion to $97.6 billion in August represented the second consecutive month in which consumers slowed their spending.

Economists blamed the drop primarily on auto sales, which decreased 9.2 percent between July and August.

Meanwhile, the Federal Reserve Board reported that consumer borrowing increased by a record $4.8 billion in July--a 16 1/2 percent increase, on an annual basis, representing the highest rate of increase since February 1979.

The increase was primarily due to a 21 percent expansion in automobile credit. Although some economists said they could not account for the large increase, given the retail figures for that month, others said the increase in auto loans for July could have come from auto sales made in June, when those sales were on the rise.

David Cross, a senior economist at Chase Econometrics, noted that the sharp drop in retail sales in August "could be perceived as a positive event," given the surge in consumer spending last spring, when retail sales climbed by 8 percent between February and May.

"A lot of people have been hoping this would happen," Cross said. "They felt the rate of growth had been so strong that it would lead to an inevitable resurgence of inflation," which would push the Federal Reserve Board into raising interest rates, a move that would slow the recovery even more, Cross said.

"It doesn't look like it's time to panic," agreed David Wyss, chief financial economist for Data Resources Inc. "Auto sales were held down primarily by the lack of autos," he said, noting that many consumers didn't even bother to venture into showrooms. "It's not a sign of great weakness in the economy or consumer spending but a sign that manufacturers and importers goofed . . . Auto sales will bounce back with new cars. I think this is only a temporary setback to the recovery."

The decrease was "surprising in view of the tax cut" granted in July, said Jerry Jasinowski, chief economist for the National Association of Manufacturers. But one factor behind the decrease may have been the hot weather, which discourages sales, he said.

Additionally, the slowdown also represented an attempt by consumers to raise their level of savings, which had been drawn down to a post-war low last spring, noted Robert Ortner, chief economist at the Commerce Department.

"This hesitation in consumer spending should not be a reason for concern," Commerce Secretary Malcolm Baldrige said in a statement. "It was expected following the dramatic springtime climb." Sales should resume once the savings rate increases and employment rises.

Although retail sales declined from July to August, they were still up over their August 1982 level by 9.6 percent.

Without car sales, retail sales increased 0.5 percent above July and 7.3 percent over August 1982.

Sales of durable goods declined 4.9 percent from July but increased 19.4 percent from the year earlier. Sales of nondurable goods increased 0.4 percent in July, with the biggest increase coming in sales at gasoline service stations and restaurants and bars. Apparel sales, however, decreased by 1.8 percent. It was the third decrease in a row, and attributable in part to the hot weather, which discouraged sales, economists said. graphics/illustration: retail sales By Gail McCrory-TWP Retail Sales Fall 1.4% in August, Borrowing Up By Caroline E. Mayer Washington Post Staff Writer

Retail sales, a major contributor to the current economic recovery, dropped 1.4 percent last month, the largest drop since July 1982, the Department of Commerce said yesterday.

The drop was far larger than many economists had expected. Nonetheless, most were not alarmed by the decrease, saying it was probably a temporary phenomenon.

The sharp decline from July sales of a seasonally adjusted $98.8 billion to $97.6 billion in August represented the second consecutive month in which consumers slowed their spending.

Economists blamed the drop primarily on auto sales, which decreased 9.2 percent between July and August.

Meanwhile, the Federal Reserve Board reported that consumer borrowing increased by a record $4.8 billion in July--a 16 1/2 percent increase, on an annual basis, representing the highest rate of increase since February 1979.

The increase was primarily due to a 21 percent expansion in automobile credit. Although some economists said they could not account for the large increase, given the retail figures for that month, others said the increase in auto loans for July could have come from auto sales made in June, when those sales were on the rise.

David Cross, a senior economist at Chase Econometrics, noted that the sharp drop in retail sales in August "could be perceived as a positive event," given the surge in consumer spending last spring, when retail sales climbed by 8 percent between February and May.

"A lot of people have been hoping this would happen," Cross said. "They felt the rate of growth had been so strong that it would lead to an inevitable resurgence of inflation," which would push the Federal Reserve Board into raising interest rates, a move that would slow the recovery even more, Cross said.

"It doesn't look like it's time to panic," agreed David Wyss, chief financial economist for Data Resources Inc. "Auto sales were held down primarily by the lack of autos," he said, noting that many consumers didn't even bother to venture into showrooms. "It's not a sign of great weakness in the economy or consumer spending but a sign that manufacturers and importers goofed . . . Auto sales will bounce back with new cars. I think this is only a temporary setback to the recovery."

The decrease was "surprising in view of the tax cut" granted in July, said Jerry Jasinowski, chief economist for the National Association of Manufacturers. But one factor behind the decrease may have been the hot weather, which discourages sales, he said.

Additionally, the slowdown also represented an attempt by consumers to raise their level of savings, which had been drawn down to a post-war low last spring, noted Robert Ortner, chief economist at the Commerce Department.

"This hesitation in consumer spending should not be a reason for concern," Commerce Secretary Malcolm Baldrige said in a statement. "It was expected following the dramatic springtime climb." Sales should resume once the savings rate increases and employment rises.

Although retail sales declined from July to August, they were still up over their August 1982 level by 9.6 percent.

Without car sales, retail sales increased 0.5 percent above July and 7.3 percent over August 1982.

Sales of durable goods declined 4.9 percent from July but increased 19.4 percent from the year earlier. Sales of nondurable goods increased 0.4 percent in July, with the biggest increase coming in sales at gasoline service stations and restaurants and bars. Apparel sales, however, decreased by 1.8 percent. It was the third decrease in a row, and attributable in part to the hot weather, which discouraged sales, economists said.