Retail sales plunged 3.3 percent in October, the steepest one-month drop on record, the Commerce Department reported yesterday.
The sharp drop in consumer spending could mean a sluggish economic growth rather than the robust rebound forecast by the Reagan administration. Consumer purchases contribute about two-thirds to gross national product -- the country's output of goods and services.
Government and private economists said yesterday that the recently ended discounts on automobile financing led consumers to purchase cars this summer that they ordinarily would have bought later in the year or caused them to divert purchases from other goods that they might have bought.
As a result of the auto buying spree, consumers have reduced their savings to historically low levels, have taken on record amounts of debt and will be reluctant to spend much more in the near future, suggesting a slow Christmas sales season, economists said.
"Strong gains in household spending since the beginning of the year cut the saving rate to historically low levels while debt relative to income has risen to new peaks," Commerce Secretary Malcolm Baldrige said. "As a result, we should see temporarily slower growth in household spending."
Output of cars and trucks contributes about 3 percent to GNP. A sharp change in automobile output "can account for much of the swing in GNP," said Robert Ortner, Commerce Department chief economist.
Sales last month were distorted by the end of automobile sales incentives, which kept retail purchases strong in August and September. Retail sales rose 2.1 percent in September. Sales in October, excluding automobiles, rose 0.5 percent, the Commerce Department reported. The previous largest one-month decline in retail sales was 2.2 percent in March 1975, during the height of the 1974-1975 recession.
Auto sales last month dropped 14.6 percent, the largest on record, Commerce said. The previous record was a 14 percent decline in March 1975.
The sales incentives provided by automobile companies in the summer "borrowed from sales in other parts of the economy as well. Consumer sales may well be sluggish for awhile, particularly in the Christmas season," Ortner said.
However, Ortner said that the 3.3 percent decline in October did not erase the 4.3 percent gain in sales made in August and September, leaving the level of sales still above July figures.
The 0.5 percent increase in non-automotive sales was "very modest," said David Jones, economist for Aubrey G. Lanston & Co. "It was nothing to write home about for Christmas."
Jones, echoing sentiments of other economists, said that consumers' debt burdens are very high and their rate of saving is very low, suggesting that consumers will hold off major buying sprees until they accumulate more funds.
However, he said that the rush to buy new automobiles as a result of sales incentives shows that if merchants give consumers a price bargain plus quality merchandise "you can get them to buy selectively" suggesting that pre-Christmas prices of goods will have to be slashed.
Sales of durable goods dropped 8.0 percent in October, because of the decline in automotive sales, Commerce said. Automobile sales had risen 8.0 percent in September and 6.1 percent in August.
Sales of nondurables dropped 0.3 percent in October following a 0.4 percent increase in September. Sales at department stores increased 0.1 percent in October following a 1.4 percent decline in September. Food store sales also dropped last month, by 1.2 percent, after rising 1.9 percent in September.
Gasoline service station sales continued to decline, dropping 1.4 percent in October following a 1.1 percent fall in September. Apparel purchases dropped 0.5 percent after rising 0.9 percent in September.