- The Washington Times - Monday, October 7, 2002

Consumer spending, a key source of strength for the economy, is falling, according to reports to be released this week.
A Bloomberg News survey of 44 economic forecasts released yesterday said the Commerce Department will reveal a 1.1 percent drop in retail sales in September, the first decline in four months. Meanwhile, a report by the University of Michigan is expected to show consumer confidence to have fallen to its lowest level since November, the survey said.
Several major retailers last week predicted declining sales and overall growth, which sent retail stocks sliding. Last week, shares of JC Penney Co. fell 54 cents, or 3 percent, to close at $15.10, a 52-week low on Friday. Shares of Target Corp. also hit a 52-week low Friday after falling $1.17, or 4 percent, last week to close at $28.35.
Car dealers also had a bad month. Sales of new cars and light trucks are on pace to hit 16.3 million for the year, down from 18.7 million last year.
Some economists said consumer behavior is starting to reflect the lack of new jobs, a tumbling stock market and uncertainty about a war with Iraq.
"Consumers are going to look at their net worth. They're going to see their nest egg has evaporated," said Mark Zandi, chief economist for Economy.com, on ABC's "This Week," yesterday. "Then they're going to see there's no jobs and they're going to stop buying the things they had been buying and the economy will be back in a recession."
Mr. Zandi rated the odds of a double-dip recession at 3-1.
"The economy is struggling mightily," he said.
A Bloomberg News survey of 53 economic forecasts from Sept. 18 to Sept. 26 indicated that the economy is expected to grow at a rate of 2.5 percent for 2002. That's down from an estimate of 3.5 percent made in July.
Other economic indicators paint different views of the economy, depending on interpretation. Optimists say the unemployment rate, which dropped 0.1 percent to 5.6 percent in September, shows the economy is slowly rebounding. But others pointed to the 43,000 lost jobs during the month as the largest decrease since February, and said it was a better indicator of the economy's health.
There is reason to think consumer spending will increase, at least moderately, some economists said. Wage and salary growth, which had been flat earlier this year, grew to 1.7 percent in August, the highest increase in 13 months. In addition, low interest rates continue to fuel strong home sales, which means more money is spent on items such as furniture, electronics and appliances.
"I think the important issue here is we still have a low unemployment rate. We're still generating positive income in the U.S. economy," said Bank One chief economist Diane Swonk, who also appeared on "This Week." "We certainly have had a lumpy recovery this year. But let's face it, this economy has faced remarkable resilience in the face of what many people thought just a year ago were insurmountable hurdles."
Discussion about the health of the economy has led to some debate about whether the Federal Reserve should lower short-term interest rates, or whether Congress should move to increase or lower taxes. Fed Chairman Alan Greenspan has cut interest rates 12 times since the beginning of 2001.

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