- The Washington Times - Tuesday, December 23, 2003

Consumer spending and incomes grew solidly last month after a sizzling summer quarter in which growth hit a 20-year high.

Consumer spending rose by 0.4 percent, less than half the robust rate of 0.9 percent seen last summer, but up from a flat performance by the nation’s shoppers during September and October, the Commerce Department reported yesterday.

The increase was fed by a healthy 0.5 percent rise in incomes last month, the latest in a string of upbeat economic news that has lifted consumer spirits during the holiday season and raised hopes that next year will bring an improved economy and job market.

“Consumer confidence has ended on a positive note; 2003 provides a good launching platform for 2004,” said Ferdinand Giese, an analyst with the Roper polling organization, whose surveys are showing a significant improvement in the consumer outlook as a result of this year’s economic growth, stock market gains and other encouraging news.

A measure of consumers’ expectations for the economy published yesterday by the University of Michigan also picked up on the increasing optimism, echoing the Roper findings.

“Americans are more positive about the economy and their personal situation. Americans have really learned to cope with economic uncertainty,” such as that spawned by heightened terrorist alerts and the ongoing conflict in Iraq, Mr. Giese said.

Consumers have shed their worries about the future, which were widespread after the September 11 attacks, and are now willing to make long-range spending plans for their homes and families, and spend on luxuries as well as necessities, Mr. Giese said.

Yesterday’s spending report showed shoppers showered money on everything from cars and vacations to trips to the beauty salon. A big incentive to spend came from a dip in consumer prices that increased purchasing power during the month.

“What an amazing end to the year,” said Joel Naroff, president of Naroff Economic Advisers. “People have the income and they are spending it,” while the drop in inflation ensures the Federal Reserve will have no reason to raise interest rates anytime soon, he said.

Economists say the downshift in consumer spending this fall has caused economic growth to settle to about half this summer’s breakneck pace of 8.2 percent. Consumers, who fuel about two-thirds of economic growth, are no longer carrying the economy on their own, and are getting help from businesses and other sources in spurring the economy in the final quarter of the year.

So far this quarter, consumer spending is growing at about a 2 percent annual rate, Mr. Naroff said. Spending on Christmas gifts in the final weeks of the year has been disappointing to merchants such as Wal-Mart, which recently scaled back its estimates for holiday sales.

“The Christmas spending season has been OK, but far from great,” said Larry Wachtel, commentator with Prudential Securities. “The low-end discount chains have faltered, and things like snowstorms and terror alerts have not helped,” he said, noting that yesterday Merrill Lynch lowered its estimates for profit growth at JC Penney, Target, Sears and Kohl’s.

“But, what the hey — it’s been a good year for investors,” he said. The Dow Jones Industrial Average and Standard & Poor’s 500 index both are up 24 percent, and the Nasdaq Composite Index has soared with a gain of 46 percent.

Stocks in other major markets around the world are up similar amounts, he said, citing one of the major reasons people feel increasing confidence about the future.

Yesterday’s economic news cheered investors, with the Dow ending the day up 3 points at 10,341. Mr. Wachtel said the conclusion on Wall Street was that the economy looks “a tad better” than before.


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