Commerce Dept.: September retail sales fall 1.5%

Washington, D.C. The Commerce Department reported Wednesday that retail sales overall took the biggest hit so far this year as September car sales plunged following the end of the Cash for Clunkers government program.

However, outside of autos, sales were better than expected.

Retail sales dropped 1.5% in September, smaller than the 2.1% fall economists had expected, but still the biggest setback since sales dropped 3.2% in December 2008.

Car sales plummeted 10.4%, but excluding autos, retail sales rose 0.5% -- better than the 0.2% increase analysts expected.

Consumer demand, which accounts for 70% of total economic activity, is being watched closely by economists who are concerned that recovery could stall due to rising unemployment and tight credit conditions.

According to the report, analysts believe the overall economy, as measured by the gross domestic product, is growing in the second half of this year at an annual rate of 3% or more. But the concern is that growth rate could slip sharply next year if consumer spending falters.

The 1.5% drop in retail sales in September followed a 2.2% surge in August, which was revised down from an initial estimate of 2.7%.

Demand for new cars surged in August as buyers rushed to take advantage of the government's incentives of up to $4,500 to trade in old models for more fuel-efficient cars under the clunkers program that wrapped up at month's end.

Other areas of strength included demand at furniture stores, which jumped 1.4%, reflecting the rebound in the housing industry. Sales at general merchandise stores, including Wal-Mart and Target, rose 0.9%. Sales at department stores edged up 0.4%.

A late Labor Day and delayed school openings helped retailers last month because consumers purchased some items in September that they normally would have bought in August.

"Retail is not out of the woods yet, but consumers felt comfortable enough last month to spend on more than just necessities," said Rosalind Wells, chief economist, National Retail Federation. "As we head into the essential fourth quarter, retailers will likely continue aggressive promotions and discounts to bring people back into stores."