- The Washington Times - Friday, March 13, 2009

Retail sales are offering a ray of hope that the steep downturn in consumer spending may be leveling off.

The Commerce Department reported Thursday that retail sales declined 0.1 percent last month - less than expected. Combined with January’s gains, economists detected some good news on the retail front during the first two months of 2009.

“The bulk of consumer spending declines should be behind us,” said Anika Khan, an economist at Wachovia Economics Group. “We expect consumer spending to be essentially flat in the second and third quarters.”

Consumer spending accounts for 70 percent of economic output.

Excluding autos, retail sales increased 0.7 percent in February after a revised 1.6 percent gain in January, the Commerce Department reported Thursday. Those gains followed six consecutive months of decline as the U.S. economy plunged at an annual rate of 6.2 percent during the fourth quarter.

A separate Commerce report Thursday showed retail inventories moving more in line with sales.

“As businesses work off excess retail inventories, they get closer to the point of having to replenish emptying store shelves,” said Bernard Baumohl, chief global economist at the Economic Outlook Group.

Last month, consumers spent more money on furniture, clothing, appliances and gasoline, which jumped 14 cents a gallon to $1.92 in February.

The auto market, however, remains in serious trouble; February sales were 41 percent off year-earlier levels. Last month, sales plunged 53 percent at General Motors, 48 percent at Ford and 44 percent at Chrysler. Even Toyota’s U.S. sales were off 40 percent.

“Even though the worst declines appear behind us, it would be premature to conclude that the consumer is on his way back,” cautioned Nigel Gault, chief U.S. economist at IHS Global Insight. “The consumer is still facing severe headwinds from falling employment and plunging asset prices.”

Indeed, the Federal Reserve reported Thursday that household net worth plummeted more than $11 trillion during 2008 as stock portfolios evaporated and home values dived. Meanwhile, the Labor Department reported that initial jobless claims jumped above 650,000 last week, the sixth consecutive week those claims have exceeded 600,000.

The U.S. economy has shed 4.4 million jobs since the recession began in December 2007, including more than 650,000 jobs during each of the past three months. That hasn’t happened since the Labor Department began keeping records 70 years ago.

“March looks just as bad, if not worse,” Mr. Gault said.

Mr. Baumohl said he placed greater emphasis on January and February retail sales than on rising jobless claims.

“If retail sales continue to improve in the months ahead, it could well be the long-awaited sign that this economy is beginning to transition out of recession,” he said.

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