End Of 'Cash For Clunkers' Takes Toll On Retail Sales

Retail sales slumped last month as Americans bought fewer autos in the wake of the government's Cash for Clunkers program. The decrease was the largest in nine months but was still less than many economists had expected.

The 1.5 percent drop in retail sales comes on the heels of a 2.2 percent increase in August, the Commerce Department reported Wednesday. Most economists had predicted a 2.1 percent drop for September.

New-car sales skyrocketed in August as buyers rushed to grab government incentives as high as $4,500 to trade in gas guzzlers for more fuel-efficient models. Car sales plunged 10.4 percent last month after Cash for Clunkers ended, but if autos and auto parts are excluded, retail sales actually rose a modest 0.5 percent last month.

"Retail sales were artificially inflated in August by Cash for Clunkers. In September, they fell back," economist Peter Morici told NPR.

"We expected auto sales to fall back after the clunkers subsidy went away," Morici said. "The real challenge will be next spring, when the buying season begins. Did they sell a lot of automobiles this summer at the expense of those spring sales?"

The Commerce Department also reported that businesses slashed inventories for a 13th consecutive month in August, pushing them down by 1.5 percent. That's more than the 0.9 percent fall that analysts had expected. Sales by manufacturers, wholesalers and retailers were up 1 percent, their third straight monthly increase.

Forecasters for the National Association for Business Economics said this week they expected inventories would be trimmed by $97.3 billion this year in inflation-adjusted terms after a reduction of $25.9 billion in 2008. But for 2010, they expect stockpiles to increase by $10.5 billion.

The better-than-expected retail figures gave a boost to early trading on Wall Street, which is betting that U.S. consumers, who account for 70 percent of total economic activity, can still lead the country out of recession.

Although many analysts believe the nation's gross domestic product is growing by about 3 percent in the second half of this year, unemployment and consumer debt remains high. That could keep a lid on spending.

Meanwhile, U.S. import prices rose just 0.1 percent in September as oil prices were held in check, according to the Labor Department. It was the sixth consecutive increase in seven months.

From NPR staff and wire reports

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