Retail sales fell 0.1 percent last month to a level of $107.7 billion, remaining little changed from where they were six months ago, the Commerce Department reported yesterday.
The department lowered its earlier estimate for September to show a gain of 1.2 percent rather than 1.6 percent. Despite essentially remaining on a plateau since April, sales in October were 6.7 percent higher than in the same month a year earlier.
In addition, most economists continued to predict a pickup in consumer spending and strong Christmas season sales. Commerce Secretary Malcolm Baldrige also said he expects consumer outlays to bounce back and "contribute moderately" to fourth-quarter growth.
"Gains in auto sales, rising employment and high levels of consumer confidence indicate that sales growth will resume in the last two months of the year," Baldrige said. Economists also cite healthy increases in personal income and moderate debt burdens as reasons for a spending rebound.
Nevertheless, a small but growing group of forecasters is becoming increasingly concerned that the summer's pause in the expansion is becoming more serious. "What is going on in most economists' minds is an awful lot of wishful thinking," declared Sam Nakagama of Nakagama and Wallace Inc., an economic consulting firm. "The strength just isn't there."
Nakagama believes that gross national product, adjusted for inflation, will rise at less than a 1 percent annual rate this quarter, compared with rates of 2.7 percent in the third and 7.1 percent in the second. He blames the high level of interest rates for the slowdown.
With the commercial bank prime lending rate still at 11 3/4 percent and producer prices for finished goods flat or declining, U.S. real interest rates are as high as they have ever been in this country because producers cannot offset high interest costs by increasing their prices, Nakagama said. High rates and weak sales are forcing businesses -- particularly retailers -- to reduce inventories, with results that are rippling through the economy, he said.
Whatever their longer-term forecasts, analysts generally are looking for only a small increase, or perhaps even a decline, in the October industrial production index, which the Federal Reserve will report today.
According to yesterday's report, sales other than in the automotive group (which covers auto parts and supply stores, as well as car dealers), fell 1 percent in October. But that drop was almost offset by a 3.5 percent increase in the automotive group, an increase that followed three consecutive monthly declines.
Sandra Shaber of Chase Econometrics, a forecasting firm, said that the relatively poor sales performance is largely because of the slowing of the rapid economic expansion of the first half of the year. But the recent retail figures also have been depressed by temporary factors that are likely to correct themselves, she said. That should mean a "modest rebound" during the Christmas season, Shaber said.
A major element in sluggish sales figures since June has been automotive dealer sales, which have been held down in part by a shortage of cars to sell. Inventories of domestic cars were low even before the strike at General Motors Corp. interrupted production there, and Japanese-made imports are under "voluntary" quotas.
In addition, October was unseasonably warm in the Northeastern United States, hurting fall sales of winter clothing, analysts said.
Although retailers still are hoping for a good Christmas season -- a period that accounts for half the annual sales in some types of stores -- bulging inventories probably mean that there will be widespread discounting of merchandise.