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Consumers are up to their ears in debt and have started to rein in their spending. Retailers have reacted by setting up Christmas displays early and are expected to offer pre-Christmas clearance sales as they did last year, analysts say.Skip to next paragraph
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Retail sales plunged a record 3.3 percent in October after seasonal adjustment, according to preliminary government figures released Thursday. The previous record was a 2.2 percent drop in March 1975, at the bottom of a recession.
Last month's sales decline was paced by a sharp 14.6 percent drop in auto sales, as customers reacted to the end of several cut-rate car-financing offers. Joseph Carson, economist at Merrill Lynch Economics, says the low-cost loan programs may have borrowed auto sales from as far ahead as next spring. Some analysts expect auto companies to offer a new round of sales incentives within the next month to get sales moving again.
When auto sales are excluded from the figures, retail sales rose 0.5 percent last month. The nonautomotive sales gain ``suggests consumers are still with the expansion,'' says John Hammond, vice-president of Data Resources Inc., an economic forecasting company.
While analysts expected auto sales to fall, the overall retail-sales numbers still ``indicate some reserve on the part of the consumer, especially since department-store sales were weak,'' says Lea Tyler of Chase Econometrics. Department-store sales rose 0.1 percent in October, after dropping 1.4 percent in September.
It would be a major blow for the economy if consumers were to snap their wallets and pocketbooks shut. Sales of goods and services to consumers account for roughly two-thirds of the nation's economic output, or gross national product.
Chase economist Tyler says she sees consumer spending slowing to a 2.5 percent pace in the final quarter of 1985, down from the 5 percent pace in the first nine months of the year.
Consumer spending is expected to slow for two major reasons.
First, the economy has been expanding for nearly three years. By now, most people have bought the items they put off purchasing during the last recession, Mr. Carson notes.
Second, consumers have somewhat less financial maneuvering room. The latest figures show that the ratio of consumer credit to disposable income has hit a record 18.9 percent, while savings as percent of disposable income has plunged to 1.9 percent, its lowest level in 35 years.
Economists caution that for a variety of technical reasons government figures probably overstate consumers' debt load and understate their savings rate.
The bottom line is that it will be a ``fairly good Christmas, better than last year,'' Carson says, with sales volume up 2 to 3 percent, vs. 1 percent in 1984. -- 30 --