Retail Sales Turn in Weak Performance

Retail sales, hurt by a big drop in auto purchases, slowed at the start of the year while business inventories turned in the poorest showing in 17 months.

The Commerce Department reported Wednesday that retail sales were essentially flat in January, the poorest performance since a 0.2% drop in sales in October.

Analysts had been expecting a gain of 0.3% gain in retail sales rather than the flat reading, based on reports from the nation's big chain stores that customers had been busy in January redeeming their Christmas gift cards and snapping up coats and other winter gear with the delayed arrival of frigid weather.

Excluding the big decline in autos, retail sales managed a 0.3% increase, although this gain was lower than the 0.4% rise that Wall Street had been expecting.

Separately, the Commerce Dept. said that business inventories were basically unchanged in December at $1.37 trillion, a drop of $147 million from the November level. That was the weakest showing for inventories since they dropped by 0.4% in July 2005.

The inventory weakness was led by a 0.5% plunge in stockpiles held by wholesalers. Retailers boosted inventories by 0.3%, which reflected gains in many categories but declines at auto dealers, who are still trying to reduce an overhang of unsold cars. Manufacturers boosted their inventories by a small 0.1%.

The weakness in retail sales and the slowdown in inventory building are the latest statistics showing the economy was not performing as well as had been previously thought at the turn of the year. On Tuesday, the government reported that the trade deficit rose in December after having declined for three months.

All of this data is causing economists to reduce their estimates for overall economic growth, as measured by the gross domestic product, for the final three months of last year. They said they believed the GDP was growing at an annual rate of just 2.5%, a full percentage point below the government's initial estimate of 3.5% GDP growth in the final quarter of 2006.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity. The retail sales report was the latest indicator flashing a weaker-than-expected signal.

Sales at department stores did show strength during the month with sales there and at other general merchandise stores up a solid 1.3%, the biggest one-month gain in a year. But this was offset by a 1.3% decline in sales of autos as the nation's car makers continue to struggle with weak demand. It was the biggest one-month drop in auto sales since a 2.4% plunge last June.

For January, gasoline station receipts fell by 0.7%, reflecting a decline in pump prices. The retail sales numbers are adjusted for normal seasonal variations but they are not adjusted for inflation. Excluding the drop in gasoline sales, retail sales would have been up a slight 0.1%.

Sales were strong at furniture stores, up 0.8%, and hardware stores, which posted a 0.8% gain, increases that might reflect that the worst of the housing slump is over.

Sales at electronic and appliance stores, which had boomed with Christmas demand for the latest electronic gadgets, fell by 1.2% in January.