Retail Sales Tumble; Trade Deficit Worsens Financial Markets Gain Ground, Despite Worrisome Trade Report
The first decline in retail sales in nearly a year sent financial markets soaring Tuesday as investors shrugged off the ballooning U.S. trade deficit and focused instead on hopes that interest rates will not be increased again.
The Commerce Department reported that sales at department stores, auto dealerships and other retail outlets fell an unexpectedly sharp 0.5 percent in February, reflecting widespread weakness in consumer demand.
The report triggered big rallies in bond and stock markets. The Dow Jones industrial average soared to a record level, closing at 4,048.75, up 23.52 points from Monday.
Analysts credited the market euphoria to a belief that the U.S. economy was slowing from its rapidfire pace of last year to a more sedate level with only moderate inflation.
“The markets are happy because the economy is slowing down and inflation is under control,” said Bruce Steinberg, an economist at Merrill Lynch in New York.
In a second report, the Commerce Department said the deficit in America’s current account, the broadest measurement of foreign trade, ballooned 50 percent last year to $155.67 billion, the second-highest level on record.
The 0.5 percent drop in retail sales in February was the first since a 1 percent drop last April. Last month’s report showed declines in nearly every category.
Sales of big-ticket items such as autos, furniture and appliances and building materials dropped last month and department store sales were down 1.1 percent.
The $155.67 billion deficit in the current account, up from $103.90 billion last year, was the second-worst trade gap on record, topped only by a $167.10 billion shortfall in 1987.
The trade gap in the OctoberDecember quarter was $44.76 billion, an all-time high for a single quarter.
© Copyright 1995 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.