WASHINGTON (Reuters) - Retail sales last month dropped the most in more than three years while a measure of New York state manufacturing hit its lowest since the index started in 2001, intensifying recession fears.
A wholesale inflation index eased, suggesting the Federal Reserve has room to lower benchmark interest rates further to try to prop up an increasingly shaky U.S. economy.
Retail sales fell 1.2 percent in September to a seasonally adjusted $375.5 billion, the Commerce Department said on Wednesday. It was the sharpest drop since August 2005 and far greater than the 0.7 percent decline economists had expected.
"We have an all-out consumer retrenchment under way," said National City Corp chief economist Richard DeKaser in Cleveland, adding he expected the economy to shrink in coming months.
The Labor Department said the producer price index, a gauge of prices received by farms, factories and refineries, dropped 0.4 percent in September, in line with expectations, as a further fall in energy costs eased price pressures.
With the economy on weak ground and inflation cooling, investors bet on further interest rate reductions from the Fed -- the U.S. central bank -- on top of the 3.75 percentage points in cuts it has already made in the past 13 months.
