U.S. retail sales, producer prices slip in September

(Reuters) – U.S. retail sales declined in September and producer prices also fell, worrisome signals on the economy’s health that heightened financial market worries over faltering global growth.

The two reports on Wednesday could deepen concerns at the Federal Reserve over the readiness of the U.S. economy to absorb a hike in interest rates that many policymakers have said would likely come around the middle of next year.

Retail sales, which account for about one-third of consumer spending, dropped 0.3 percent last month after a 0.6 percent gain in August, 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 drop in gasoline prices that would have cut into receipts at service stations.

But what came as a surprise was that the weakness was so broad-based. A gauge of so-called core sales, which strips out automobiles, gasoline, building materials and food services, and corresponds most closely with the consumer spending component of gross domestic product, fell 0.2 percent. Economists polled by Reuters had expected it to rise.

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

Prices for U.S. stocks dropped about 1 percent and yields on U.S. government debt fell sharply.

The United States had looked like a bright spot in a slowing global economy, but Wednesday’s data took away some of that shine.

Sales at clothing retailers dropped 1.2 percent and receipts at sporting goods shops edged 0.1 percent lower. Overall sales would have fallen further but for the release of a new version of Apple’s (AAPL.O) flagship cellular phone, which helped sales at electronics and appliance stores rise 3.4 percent.