U.S. retail sales, producer prices give cautionary signs on economy

Wed Oct 15, 2014 5:04pm EDT
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By Jason Lange

WASHINGTON (Reuters) - U.S. retail sales declined in September as consumers pulled back on spending for a range of items, a worrisome economic signal that helped fuel a sell-off on Wall Street.

The report on Wednesday, along with data showing a drop in producer prices, led investors to bet the Federal Reserve would delay hiking interest rates until late 2015 at the earliest to keep support for the economy in place.

Retail sales, which account for about one-third of consumer spending, dropped 0.3 percent last month, the Commerce Department said. It was the first decrease since January.

Economists had expected a decline given a slower pace of sales reported by automakers and a fall in gasoline prices that cut into receipts at service stations.

But the breadth of the weakness was surprising. Sales were down 0.2 percent even when stripping out automobiles, gasoline, building materials and food services. Economists polled by Reuters had predicted an increase in this reading, which provides a pretty good gauge of overall consumer spending.

"Consumers have turned more cautious," said Ted Wieseman, an economist at Morgan Stanley in New York, who cut his third-quarter economic growth forecast to 3.1 percent from 3.4 percent on the figures. 

Prices for U.S. stocks tumbled as much as 3 percent during the day, although the Standard & Poor's 500 index closed down just 0.8 percent. Investors, already spooked by signs of economic weakness overseas, rushed into the safe haven of U.S. government debt, pushing yields down sharply, while the dollar fell against the euro and the yen.


A combine drives through a field of soft red winter wheat during the harvest on a farm in Dixon, Illinois, July 16, 2013.    REUTERS/Jim Young