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Retail sales jump 1.2%
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September 14, 1999: 11:24 a.m. ET
August sales rise at fastest pace in half year; Fed rate hike seen more likely
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NEW YORK (CNNfn) - Retail sales jumped 1.2 percent in August, the government said Tuesday, topping economists' forecasts and spurring renewed fear that a Federal Reserve interest rate hike looms.
The August growth to a seasonally adjusted $252.4 billion follows an upward-revised 1.0 percent gain in July, the Commerce Department reported. It marked the fastest rate increase since a 1.7 percent climb last February and it easily surpassed economists' expectations for a 0.8 percent rise.
Surging demand for clothes and automobiles powered the gains. New car sales up are now up 19 percent from August a year ago.
Markets tumbled on the news. The 30-year Treasury bond tumbled 26/32 in price for a yield of 6.11 percent. The Dow industrials average fell more than 100 points to 10,929.64 in early trade before recovering slightly.
Continued economic pep
Economists said the Federal Reserve, which has been wary of inflation as the U.S. economy shows continued pep and global markets rebound from last year's tremors, is now more likely to consider a rise in short-term rates at its policy meeting on Oct. 5.
"It is a strong number. There is little sign of a slowdown," Peter Kretzmer, a senior economist at Bank of America Securities, told the Reuters wire service. "It would make an impression on the Fed. … There is a 50-50 percent chance that the Fed could raise rates in October, from below a 50 percent chance" prior to the report.
John Lonski, a bond market expert at Moody's Investor Service, agreed that a rate increase is now more likely, but said it may come "perhaps not Oct. 5, but by Nov. 21."
The Fed repeatedly has expressed its willingness to raise interest rates -- after two increases already this summer -- in a bid to slow the roaring economy and ward off inflation.
The retail sales report is a key indicator of consumer spending, which generates roughly two-thirds of the nation's economic activity and has been a key driver in the eight-year expansion.
In recent months, however, the Fed's top concern has been a tight labor market and the prospect that wage inflation will rise. A report is due Wednesday on consumer prices, the nation's primary inflation gauge.
Retail strength came in several categories, the Commerce Department reported. Auto sales rose 2.5 percent and apparel sales climbed 1.3 percent, in the wake of July's 0.9 percent drop.
Excluding auto sales, retail sales rose 0.7 percent vs. forecasts for a 0.4 percent rise. Year-to-year auto sales were up 19.3 percent in August.
Sales of durable goods designed to last at least three years rose 1.8 percent to $106.8 billion, while nondurable sales rose 1.7 percent to $145.6 billion.
Separately, the U.S. current account deficit -- the broadest measure of the United States' trade with the rest of the world -- grew by 17.5 percent to $80.67 billion in the second quarter, the Commerce Department said. The gap was wider than the $78.9 billion forecast by economists in a Reuters poll.
-- from staff and wire reports
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