Retail sales jump, confirming forecasts of recession-free '85
A sharp spurt in February retail sales shows consumers still are fueling economic growth and tends to confirm forecasts that 1985 will be recession free, analysts say. ``The consumer is out there giving continued support for the economy,'' says Donald Ratajczak, director of the Georgia State University Forecasting Project.
But rising consumer debt levels and climbing interest rates, along with other factors, are expected to slow the pace of consumer buying and thus cool the economy's growth rate as 1985 progresses, forecasters add.
``Buying fundamentals will deteriorate,'' says John Hammond, consumer economics director at Data Resources Inc., and ``1985 will weaken as it goes along. That's the bottom line,'' he says.
While the pace of growth may slow, the United States is ``in for a period of modest expansion through at least the fall of this year,'' says Sandra Shaber, senior economist at Chase Econometrics.
In fact, a new survey of 50 top economists conducted by Blue Chip Economic Indicators, a Sedona, Ariz., newsletter, found that none of those reporting expects a recession this year. The survey's consensus is that the pace of growth in the inflation-adjusted gross national product will slow steadily as the year progresses. But economic output will still be 3.9 percent higher in 1985 than in 1984, the forecasters said.
A rebound in consumer spending is one reason forecasters are optimistic. In February, overall retail sales jumped a healthy 1.4 percent after adjustment for seasonal factors, preliminary government figures released Wednesday showed. Last month's gain was roughly double what economists had expected and was the strongest gain since November.
February's strong showing follows a 0.3 percent sales decline in December and a 0.5 percent rise in January.
Department stores enjoyed a particularly strong rebound in February, with sales up 3.7 percent from January when the stores saw sales drop 3.7 percent. Less robust gains were posted by the nation's auto dealers, who saw February sales rise 0.4 percent after a sharp 1.4 run-up in January.
All of these retail-sales numbers are preliminary and subject to revision.
White House spokesman Larry Speakes hailed the figures and said they show ``a growing consumer confidence. People are emerging from the winter season with an economic strength that is showing up at the cash register.''
Analysts advance a variety of reasons for February's strong retail sales: A strong rebound in the housing sector, where starts were up 15 percent in January, helps sales of appliances and home furnishings, notes Harold Nathan, senior economist at Wells Fargo Bank.
In addition, department store executives entered February with inventories higher than desired. To reduce excess stocks, many stores cut prices, thereby boosting sales, Mr. Hammond says. And warmer-than-usual weather in some parts of the country may have set off a spring buying surge earlier than usual, he says.
While the rate of increase in auto sales slowed to 0.4 percent from January's 1.4 percent gain, car sales still have risen for five out of the last six months. But auto sales will slow later in the year as Detroit finally catches up with a shortfall in supply caused by last fall's auto strike. ``We expect car sales to fade gradually as the year progresses,'' Mr. Hammond says.
A key factor in both slowing car sales and other retail items, analysts say, will be rising interest rates. The recent spurt in retail sales has cleared out excess inventories and means factories orders will pick up this spring, Mr. Ratajczak says.
The pace of economic activity will be ``too good, given the government's debt position, to keep interest rates down,'' he says. By midyear he expects the federal funds rate, the rate banks charge one another for overnight loans, to climb to 10 to 10.5 percent from the current 8.5 percent level.