- The Washington Times - Saturday, September 14, 2002

ASSOCIATED PRESS
Consumers stepped up their purchases of new cars, furniture and other goods in August, pushing retail sales up for a third straight month, the Commerce Department said yesterday in a report that eased fears the country was in danger of slipping back into a recession.
In other good economic news, inflation at the wholesale level remained a no-show with declines in the cost of food, new cars and computers helping to offset the biggest jump in energy prices since April.
The stronger-than-expected 0.8 percent increase in retail sales in August compared with July was propelled by a 1.9 percent rise in auto sales as attractive zero-interest-financing offers continued to lure buyers into auto showrooms.
But even outside of autos, retail sales showed a respectable 0.4 percent monthly increase.
, double what economists had been expecting, led by a 1.7 percent rise in sales of furniture and other home furnishings.
"The better-than-expected showing by retailers suggests the economy was not nearly as weak as widely feared during the summer," said Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C.
After a wave of corporate-accounting scandals triggered a renewed plunge in stock prices in June and July, there were worries consumer spending, which accounts for two-thirds of economic activity, could falter.
Analysts said those worries should be eased by the strong August retail sales, although some cautioned that the recovery is not yet on a firm footing, citing another report yesterday that consumer confidence fell again in early September, according to a preliminary survey by the University of Michigan.
The continued reluctance of businesses to hire new workers, a recent spurt in layoff notices and worries about a potential war with Iraq are all weighing on confidence, analysts said.
"The retail sales report should help dispel the darkest scenario that we might have a double-dip recession, but there are still risks out there," said Mark Zandi, chief economist at Economy.com.
Many analysts said the unexpectedly strong August advance in retail sales was prompting them to raise their estimates for overall economic growth in the current quarter to 3 percent or better, far above the anemic 1.1 percent growth rate in the spring.
"The consumer is doing the job we hoped they would do, leading the country to recovery," said Ken Mayland, head of ClearView Economics. "We are going to get pretty decent, solid growth this quarter."
The Labor Department's producer price inndex, which measures inflation pressures before they reach the consumer, was unchanged in August even though energy prices surged, led by a 3.7 percent boost in gasoline prices, an increase that was blamed on concern about potential supply disruptions if the United States goes to war with Iraq.
However, the spurt in energy prices was not reflected in other areas. Food prices fell by 0.4 percent in August, as the cost of beef, chicken and vegetables all fell. Prices of computers dropped by 3.8 percent and new car prices were down 0.1 percent.
Overall, inflation has been well behaved at both the wholesale and retail levels as last year's recession and this year's faltering recovery have kept a lid on prices. The government will report on consumer inflation Wednesday.
Through the first eight months of this year, wholesale prices have risen at an annual rate of just 0.8 percent while prices excluding energy and food are up at a 0.4 percent rate. In August, prices outside of food and energy fell by 0.1 percent.
The absence of inflation pressures has been a primary reason that the Federal Reserve has been able to leave interest rates at a 40-year low throughout this year in an effort to boost the tepid recovery.
Those low rates have spurred sales of big-ticket items such as homes and autos and also triggered a record level of mortgage refinancings, giving consumers more money to spend.
Federal Reserve Chairman Alan Greenspan, testifying before the House Budget Committee, said on Thursday that the terrorist attacks of a year ago and the recent steep drop in the stock market were continuing to exert "depressing effects" on the economy.
While Mr. Greenspan gave no hint as to whether the Fed might cut interest rates when policy-makers meet on Sept. 24, many analysts said the strength in yesterday's retail sales made any rate cut less likely.

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