- The Washington Times - Thursday, December 14, 2000

ASSOCIATED PRESS

Americans, feeling less confident in the economy, tightened their belts in November, driving down sales at the nation's retailers for the first time in seven months.

Most of the weakness in retail sales, at the start of the holiday shopping season, came from a 2.2 percent drop in sales of new cars and trucks, the biggest decline since July 1998. In October, auto sales fell by 1.0 percent.

Overall, the Commerce Department reported yesterday, retail sales fell by 0.4 percent last month, surprising analysts who expected sales to rise slightly. In October, sales were flat.

The report and what so far appears to be a not-so-very-festive holiday season for retailers provide the latest evidence that the economy is slowing after its long-

est streak of uninterrupted growth.

"The Grinch is not just playing in the movie theaters, he's playing the malls and the department stores everywhere," said Ken Mayland, an economist with ClearView Economics.

The driving force behind the economy's remarkable growth has been consumer spending, which accounts for two-thirds of all economic activity. But consumers are now spending more cautiously, analysts said.

Economists blamed weakening consumer demand on a number of factors, including higher interest rates, which make borrowing more expensive; volatility in the stock market, which takes a dent out of consumers' investment portfolios; and higher fuel prices, which means consumers have less to spend on other items.

Against this backdrop, consumer confidence fell in November to its lowest level in more than a year.

While the holiday shopping season opened with a strong start the day after Thanksgiving, more recent data show mall traffic down and sales soft. Merchants are also worried that the big snowstorm raking the Midwest will hurt business.

All this raises the specter that retailers will be forced to discount merchandise more aggressively to get people into stores and buy, further hurting companies' profit margins.

"It's cold outside. But I think retailers are sweating bullets at the moment," said Mark Zandi, chief economist for Economy.com, a consulting firm.

Michael Niemira, economist with Bank of Tokyo-Mitsubishi, believes this year's holiday sales will turn out to be the weakest since 1996.

The Federal Reserve has raised interest rates six times since June 1999, hoping to slow the economy enough to keep inflation in check but not so much as to cause a recession.

Many economists expect the Fed will leave interest rates alone when it meets next week but will change its policy statement away from a tilt toward raising interest rates to a neutral stance. That position would assume the risks of inflation are no greater than the risks of the economy's stalling.

Fed Chairman Alan Greenspan signaled last week that the Fed stands ready to cut interest rates if the economy shows signs of slipping into a recession.

Both George W. Bush and his running mate, Richard B. Cheney, expressed concerns recently that the slowdown in economic growth may be threatening a full-blown recession. They have said this is a major reason why Congress next year should pass the Republicans' $1.3 trillion tax-cut proposal.

Paul Taylor, chief economist for the National Automobile Dealers Association, said the decline, which represents a drop in the value of sales, reflects more sales of less-expensive, smaller cars.

Other economists said less aggressive incentives and discounts also hurt business.

Excluding the decline in autos, retail sales rose by a modest 0.2 percent in November.

Sales of all durable goods, items expected to last three or more years, decreased by 1.1 percent last month after a 0.6 percent drop in October.

At general merchandise stores, including department stores, sales fell by 0.2 percent in November, the biggest decrease since May 1999. In October, sales rose 0.5 percent.

For retailers, there were a few bright spots in the report.

Furniture sales rose by a strong 1.5 percent last month after a scant 0.1 percent gain the previous month. Sales at clothing stores rose by 0.8 percent, double the 0.4 percent increase reported in October.

Sales at hardware stores and building supply centers edged up 0.1 percent in November, down from a sizable 1.4 percent rise.

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