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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.
Sales at clothing retailers dropped 1.2 percent and receipts at sporting goods shops edged down 0.1 percent. Overall sales would have fallen further but the release of Apple's iPhone 6 lifted sales at electronics and appliance stores.
Receipts at auto dealers fell 0.8 percent, as did sales at service stations.
Sounding a less dour note, the Fed said in its so-called Beige Book that the economy continued to expand at a "modest to moderate" pace across much of the nation in recent weeks.
Wage growth, however, remained modest in most areas, even as employers bid up wages in some particular industries, it said.
With wages under wraps, inflation has failed to gain a toehold, and the Fed said businesses reported little if any change in prices over the past several weeks.
In a separate report, the Labor Department said prices received by U.S. producers actually fell 0.1 percent in September, the first decline in more than a year.
While Fed officials have been concerned that inflation has been stuck below their 2 percent target, other signs of strength in the economy had left them optimistic they would finally be able to raise benchmark overnight rates from zero by mid-2015.
As recently as Tuesday, San Francisco Fed President John Williams told Reuters the central bank should only delay a rate hike if inflation or wages failed to perk up.
The reports on Wednesday suggested he may be kept waiting a bit longer. "Little inflation pressure (is) in the pipeline," economists at RBS said in a note to clients.
Reporting by Jason Lange; Editing by Andrea Ricci, Meredith Mazzilli and Cynthia Osterman