WASHINGTON(Reuters) – Sales at retail stores recorded their biggest monthly dropin more than three years in September while a measure of inflationeased, according to government data on Wednesday that intensifiedrecession fears.
A gauge of manufacturing in New York State tumbled in October to thelowest since its inception in 2001, a report from the New York FederalReserve Bank said.
Retail sales fell 1.2 percent last month to a seasonally adjusted$375.5 billion, the Commerce Department said. That was the sharpestdrop since August 2005 and far worse than the 0.7 percent declineeconomists polled by Reuters had expected.
The Labor Department reported that U.S. wholesale prices dropped 0.4percent in September, in line with expectations as another fall inenergy costs eased price pressures.
With economic growth looking shaky and inflation cooling, investorsbet on further interest rate reductions from the Federal Reserve on topof the 3.75 percentage points in cuts the central bank has alreadytaken in the past 13 months.
U.S. stock index futures and the dollar extended losses after thesteeper-than-expected drop in retail sales and weak New York factorydata, while U.S. government debt prices added to gains on rate cutexpectations.
"The question on everyone’s minds is how deep of a recession," saidKathy Lien, director of currency research at GFT Forex in New York.
"Today’s (retail sales) number indicates a very strong chance ofnegative GDP growth for the third quarter and would certainly pave theway for another 25 to 50 basis points of easing over the next fewmonths and the PPI number confirms that as inflation is coming down aswell."
While falling oil prices cooled overall inflation, a closely watchedmeasure of prices that strips out food and energy costs posted asurprisingly steep increase. The so-called core PPI rose by 0.4 percentlast month, twice the rate that economists expected.
The credit crisis that has raged for some 14 months has taken a heavy toll on consumer confidence and spending.
Excluding autos, retail sales were off 0.6 percent for September,double the 0.3 percent decline that economists had forecast. The housedownturn continued to take a toll on furniture and home furnishings,with sales falling 2.3 percent, the sharpest decline since February2003.
In the manufacturing sector, the New York Fed’s "Empire State" indexof general business conditions fell to minus 24.62 in October fromminus 7.41 in September. Economists had been looking for a reading ofminus 10.0.
(Additional reporting by Doug Palmer in Washington and Nick Olivari in New York)
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