- The Washington Times - Friday, December 14, 2001

Consumers pulled back on spending again last month as recession worries outweighed falling prices, free financing and other enticements from retailers and sent sales plunging by a record 3.7 percent.
The drop did not fully retrace October's record 6.4 percent sales jump, which itself was a rebound from a post-September 11 bust propelled by a banner rate of auto sales. Dealers were unable to sustain the October auto sales bonanza despite the availability of zero-interest financing on many models.
They found many imitators, however, as retailers nationwide tried to gin up sales with similar cut-rate financing and deep price-slashing well in advance of Christmas.
Consumers gave a tepid response, getting the Christmas shopping season off to a slow start, with deep discount stores like Wal-Mart and Costco remaining the main beneficiaries of their new penchant for saving money and sticking to necessities. A pickup in sales at furniture, electronics, grocery and sporting goods stores reflected the "cocooning" trend since the terrorist attacks, as consumers focus their activities including eating and entertainment around the home.
"While some retailers will do reasonably well, overall sales are likely to be disappointing," said Eric Kobren, analyst with Fundsnet Insight. He noted that a recent survey by the Conference Board private research group showed that consumers plan to spend less this Christmas than last year.
Sales are threatened despite the "gutsy" move by General Motors and other auto companies to slash financing rates, he said. "Many retailers are following GM's lead, running 'after-Christmas sales' now, sacrificing profits but reducing the risk of getting stuck with excess merchandise," Mr. Kobren said. "I'm concerned that early discounting will rob many retailers of future sales and profits."
The retrenchment by consumers dampened hopes for a quick recovery on Wall Street and raised worries that the recession could deepen. The Dow Jones Industrial Average lost 128 points as investors questioned whether consumers would continue to be a powerful engine pulling the U.S. and world economy out of recession.
"Sales have shown some recovery from September 11, but consumers are turning cautious and buying selectively," said Lynn Reaser, chief economist at Banc of America Capital Management. "Discounters remain in the forefront of sales, and consumers will be watching for bargains in the holiday season."
Looming over consumers has been the specter of sharply rising unemployment and the loss of 800,000 jobs in the last two months. Unemployment jumped from 5.4 percent to 5.7 percent last month, but a report from the Labor Department yesterday suggested that job losses stabilized last week, when new claims for unemployment benefits dropped by 86,000 to 394,000.
Major employers, suffering from declining sales and profits, in recent days have announced a new round of layoffs, however, that will drive more people to the unemployment lines in coming weeks.
American Express said it will fire as many as 6,500 workers, Aetna said it is planning 6,000 layoffs, Qwest Communications plans to eliminate 7,000 jobs, Kroger said it will shed 1,500 positions and Applied Materials announced 1,700 job cuts.
Job-related concerns weigh on consumers even as they enjoy big drops in prices for everything from toys, electronics and other imported goods to food and gasoline.
A report from the Labor Department yesterday showed a rare second monthly drop in producer prices of 0.6 percent.
"U.S. companies are responding to falling demand by cutting prices, and that is depressing their bottom line," said Debbie Johnson, economist with Deutsche Banc Alex. Brown.
The depressed profits, in turn, are the reason behind the layoffs.
But she said she remains "relatively optimistic" that consumer spending will hold up next year.
"Retailers are likely to continue offering consumers greater incentives to continue shopping," she said.

Sign up for Daily Newsletters

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide