Retail sales last month plummeted 1.9 percent, the largest drop in seven years, as purchases of automobiles and other durable goods fell sharply, the Commerce Department reported yesterday.
The March sales drop offset a 1.6 percent increase in February, leaving retail sales down slightly for those two months. Economists said the March sales figures did not mean that the economy was headed for a downturn but that growth this year may be more modest than earlier anticipated.
Meanwhile, major retail chains reported strong sales gains in March and early April. Those increases, however, are measured against the 1984 period, while the Commerce Department numbers compare March with February.
The Reagan administration had forecast 4 percent growth for this year. However, Commerce Department Chief Economist Robert Ortner said that target may be difficult to reach in light of sluggish sales, anticipated large trade deficits, weakness in the manufacturing sector, and government estimates of first-quarter growth of only 2.1 percent.
If growth is slower than anticipated, the budget deficit probably will be larger than expected.
"We may have trouble making that" growth rate, Ortner said. "To make 4 percent growth without the manufacturing sector will be difficult." Domestic demand is strong, but is being diverted away from domestic production to imports, Ortner said, adding that 1985 growth "may come in slightly under" 4 percent.
Economists pointed to slower increases in personal income, sluggish employment gains, subdued consumer confidence, and record or near-record levels of debt burdens held by consumers to back up predictions of modest growth for this year.
Nothing in the retail sales report "is super optimistic," said Edward Friedman, senior economist at Chase Econometrics. Friedman said that in addition to slower growth in personal income and employment gains, the debt-to-income ratio of consumers is nearing the high rates reached before the recession. "It is close to or has surpassed the cyclical peak in 1979," Friedman said.
A high debt-to-income ratio generally leads to a slowdown in purchases of durables and automobiles, Friedman said.
"The consumer is beginning to hold back on spending, primarily because income gains are slowing and consumer confidence is subdued," said Jerry Jasinowski, chief economist for the National Association of Manufacturers.
"Overall, the growth rate during the first half of the year could slow to the 3 percent to 3.5 percent range," he said.
The March decline was the sharpest since retail sales fell 2 percent in January 1978, Commerce said. Sales in March, unadjusted for inflation, were $112.74 billion, Commerce said.
Ortner said he expected sales to perk up in April in part because some unusual circumstances may have existed last month to produce the sharp decline. For example, the savings and loan crisis in Ohio may have caused sales reductions in that state, Ortner said.
In addition, the Internal Revenue Service has been late in sending out refund checks that could be used to purchase goods, Ortner said.
Durable goods sales dropped 2.4 percent to $40.31 billion following a 1.7 percent increase in February. Nondurable sales also fell 1.7 percent in March following a 1.5 percent increase in February.
Excluding automobile sales, total retail sales dropped 1.4 percent following a 1.6 percent increase in February. Automobile sales last month dropped 4 percent, following a 1.7 percent increase in February.
Meanwhile, some of the nation's major retailers reported sharp sales gains in March this year over March 1984. K mart Corp. sales rose 19.8 percent and Zayre Corp. March sales rose 31.4 percent.
Other stores had improved sales for five weeks ended April 6: R. H. Macy & Co. sales rose 8.1 percent, and J. C. Penney Co. said sales increased 7.2 percent.