Business sales dropped 1.1 percent in February for the largest decline in eight months as U.S. companies continued to be battered by imports and weak demand.
The Commerce Department reported yesterday that the decline in sales for manufacturers, retailers and merchant wholesalers followed an almost imperceptible rise in sales during January. Meanwhile, Commerce also reported that manufacturers' and trade inventories were virtually unchanged in February. The level of inventories reflects weak sales and a backlog of unwanted automobiles, economists said.
A separate government report underscored the weak sales performance. The Federal Reserve Board reported that consumer installment credit increased $4.97 billion in February compared with a rise of $7.66 billion the previous month.
The decline in sales and the flat inventories suggested to some economists that economic growth in the first three months of the year was lackluster, despite many other factors that normally would suggest a pickup in activity, such as falling interest rates and plummeting oil prices.
However, one major drag on the economy is a backlog of unsold automobiles due in large part to the end of discount financing programs offered by major auto makers. Yesterday, General Motors Corp. announced that it again will begin offering major cut-rate financing for new-car buyers.
Inventory investment by businesses has not grown substantially, because the sluggish performance of the economy discourages the accumulation of stocks, said Robert Ortner, the Commerce Department's chief economist. Furthermore, although interest rates have been declining, they still are high for holding inventories, and the influx of imports has reduced the chance of stocks being sold, Ortner said.
However, economists said that, as the economy picks up later in the year in response to lower interest rates and oil prices, inventory investment should improve.
Two major industries -- oil and automobiles -- may continue to reduce inventories because of the prospect of slow sales, Ortner said.
He also said business sales will improve as retail sales pick up, especially as lower gasoline prices provide more disposable income for consumers. "Lower gas prices will save consumers between $25 billion and $30 billion" this year, Ortner said. Consumers will "have a lot of extra money jingling in their pockets."
Meanwhile, in a separate report, the Fed said consumer credit expanded in February at an 11 percent annual rate, following a 17.2 percent annual rate of growth in January.
Auto credit outstanding expanded at only about half the level of January. It rose $2.54 billion in February compared with a $4.18 billion rise in January.
Revolving credit, including retail and bank card borrowing, increased $1.04 billion in February, up from $1.39 billion the previous month.