- The Washington Times - Friday, November 15, 2002

ASSOCIATED PRESS

Consumers bought fewer new cars but they splurged on clothes, allowing sales at the nation's retailers to hold steady in October. That raised hopes among economists that the holiday season might see shoppers acting more like Santas than the Grinches many had feared.

Consumer confidence tumbled to a nine-year low last month, dragged down in part by worries about a war with Iraq. But a Commerce Department report yesterday showed retail sales managed to stay level after plummeting by 1.3 percent in September.

"I think the retail sales figures suggest that this won't be an awful holiday season for retailers after all," said Bill Cheney, chief economist at John Hancock. "Given the state of the economy … it probably won't be fantastic," he added. "Let's put it this way: Santa won't get a hernia, but he may put his back out."

October's sales better than the 0.2 percent decline analysts were expecting also reinforced economists' belief that consumers will open their pocketbooks and wallets enough to prevent the sputtering economy from sliding back into recession.

Consumer spending accounts for two-thirds of all economic activity in the United States. Although consumers have turned cautious this year amid falling stock prices and a lackluster job market, they remain the primary force keeping the economy going.

Tax cuts, extended unemployment benefits and extra cash coming from a mortgage refinancing boom have supported consumer spending, helping to offset some negative forces, Federal Reserve Chairman Alan Greenspan told Congress on Wednesday.

Deep discounts and zero-percent financing deals, especially on cars, have been another big factor, he said.

However, Mr. Greenspan criticized the Republican argument that making the tax cut permanent will spur the economy.

"I know there's a presumption that if you make those tax cuts permanent it will add stimulus to the economy. I doubt it," he said. Mr. Greenspan said the market has already presumed the tax cuts will be made permanent, and if they aren't, the markets could react negatively.

Another economic report yesterday suggested that companies, struggling to cope with the uneven economic recovery, are reducing the speed at which they lay off workers. For the second straight week, new claims for jobless benefits fell, declining last week by 8,000 to 388,000, a three-month low, the Labor Department said. Still, economists believe companies will remain cautious in hiring, making life difficult for job seekers.

In the retail sales report, sales of new cars fell by 1.9 percent in October, following a 5 percent drop the month before. Economists expected sales to slow from the brisk levels earlier in the year.

Excluding automobile sales, retail sales rose by a solid 0.7 percent, the biggest increase in six months and much better than the 0.3 percent increase analysts were predicting.

Sales at clothing stores jumped by 4 percent in October the biggest advance since December and a turnaround from September's 1.6 percent decline.

At general-merchandise stores, including department stores, sales went up by 1.1 percent in October, following a 0.1 percent dip the month before. Building and garden supply stores saw sales rise by 0.5 percent in October, on top of a previous 0.3 percent increase.

Sales of health and beauty products rose 0.4 percent, down from a 1.1 percent increase.

Furniture and home furnishing sales dipped by 0.1 percent for the second month in a row. Sales at electronics stores edged up 0.1 percent, erasing a 0.1 percent drop in September.

At bars and restaurants, sales fell by 0.8 percent in October, after a 0.1 percent rise.

The Federal Reserve, hoping to energize the economy, cut short-term interest rates by a half a percentage point last week, its first rate cut this year and its 12th since January 2001.

Even with the encouraging retail sales news, economists believe the economy, which grew at a respectable 3.1 percent pace in the third quarter, is slowing in the October-December quarter.

Nonetheless, October's sales give "policy-makers hope that fourth-quarter growth will not be a disaster," said economist Ken Mayland, president of ClearView Economics. "Hope's alive."


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