- The Washington Times - Wednesday, January 16, 2002

Consumers, defying predictions they would turn into Scrooges, spent on clothes, electronics and home furnishings in December and prevented the sharp drop in retail sales that many analysts were forecasting.
The Commerce Department reported yesterday that sales at the nation's retailers dipped by 0.1 percent in December from the previous month, a much better showing than the 1.4 percent decline many economists were predicting. In November, sales fell by a steep 3 percent.
"We went into the holiday season thinking sales could be disastrous. In fact, consumers held up fairly well," said Carl Tannenbaum, chief economist with LaSalle Bank/ABN AMRO. "People are feeling more confident in the economy, and they are expressing that with their dollars."
Consumer confidence, as measured by the Conference Board, rebounded in December after three months of steep declines.
Retail sales last month were pulled down by a 4.2 percent drop in sales at gasoline stations, reflecting lower prices at the pump. Sales at sporting-goods and building-supply stores also declined.
But sales for many other items including clothing, home furnishings, electronics and appliances, and health and beauty products posted solid gains in December. So did sales at bars and restaurants.
Sales of cars edged down by 0.1 percent last month as free-financing deals and other incentives waned. But the decline was smaller than many analysts expected and marked an improvement from the 10.3 percent plunge seen in November.
Excluding automobile and gasoline sales, overall retail sales rose a respectable 0.3 percent in December, economists said.
Economists said consumers have shown resilience amid economic gloom and rising unemployment. The country tipped into recession in March and was dealt another blow by the September 11 terror attacks. The nation's unemployment rate hit a six-year high of 5.8 percent in December.
For all of 2001, retail sales rose by 3.4 percent. While that was a big moderation from the 7.6 percent increase in 2000, it showed that consumer spending didn't collapse. Still, the 3.4 percent increase was the weakest showing since the government began tracking retail sales using the current classification system in 1993.
Economists said lower energy prices, heavy discounting by merchants, low interest rates and a refinancing boom which has left people with extra cash in their pockets are helping support consumer spending.
To revive the ailing economy, the Federal Reserve cut interest rates 11 times last year. That pushed the prime rate, a benchmark for many consumer and business loans, to the lowest level since November 1965.
Some analysts are predicting the Fed's action will set the stage for a recovery in the first half of this year.
But whether that timetable is accurate depends in part on whether consumers whose spending accounts for two-thirds of all economic activity reduce spending in the coming months.
Some economists are concerned that a worsening employment picture could jolt Americans' confidence, causing consumers to sharply pull back spending, which could delay a rebound or make for a weak recovery. But other economists say they believe consumers will hang tough.
"My view is that the economy is in the process of bottoming out and that consumers will be able to hold their own and help this economy rebound in the first half of the year," said Lynn Reaser, chief economist with Banc of America Capital Management.

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