- The Washington Times - Friday, September 12, 2003

Americans kept spending on everything from cars to appliances last month, boosting retail sales by 0.6 percent and adding to the strong summer economic revival.

But a decline in confidence in recent weeks suggests that consumers are getting spooked by growing joblessness, which has continued despite robust growth in a trend that eventually could imperil the recovery, analysts said.

The rise in retail sales reported by the Commerce Department yesterday heartened forecasters who have been predicting a pick-up in economic growth to as high as 6 percent in the summer quarter, though it disappointed investors on Wall Street who had expected the sales increase to be twice as large because of gangbuster rates of auto sales during the month. Markets rose only modestly on the news, with the Dow Jones Industrial Average gaining 12 points to rise to 9,488.

“The gain in August retail sales was considerably smaller than expected, but still solid,” said Ed Yardeni, chief investment strategist at Prudential Securities.



Worries about jobs are affecting consumer confidence, as shown in a measure of sentiment published by the University of Michigan yesterday, but they will not thwart spending as long as consumers have plenty of cash to spend, he said.

Consumers are flush with cash partly because of $30 billion in tax cuts that went into effect during the summer quarter and another $88 billion coming on line next year, he said.

They also have stowed away a record $3.1 trillion in savings deposits, some of which was derived from cash-out mortgage refinancings, creating a mountain of reserves that is available to spend, he said.

“Consumers should continue to drive economic growth,” despite rising layoffs and jobless claims, he said, noting that chain stores like Sears and Wal-Mart as well as furniture and appliance dealers recently have been the biggest beneficiaries of consumer largesse.

While analysts continue to be optimistic that the economy is on the mend and new jobs will start to appear by the end of the year, businesses and consumers are showing considerable skepticism that the surge in growth spawned this summer by tax cuts and record low interest rates will last for long.

While businesses report a boost in sales and orders, wariness about whether the boom will endure has prompted them to postpone hiring new workers. Few businesses say they intend to take on new staff in recent surveys of corporate hiring plans for the fall quarter — only 12 percent in a Morgan Stanley business conditions index released this week.

More than one-third of corporate managers surveyed by Morgan Stanley, in contrast, said they plan to cut staff in the next three months, in a sign that joblessness could continue to rise rather than fall through the end of the year.

“These geniuses who run corporate America think they’ll continue to have an endless supply of free-spending consumers, while at the same time endlessly laying off employees,” said an out-of-work technology employee who dubbed himself the “endless job searcher” on a Monster.com chat board yesterday.

But the continuous stream of layoffs is creating an “assured mutual destruction economy,” he said, because it will leave consumers without the income and jobs they need to keep spending.

“Most who are still employed gainfully worry about losing their jobs on any given day. It is truly a race to the bottom,” the job searcher said. “The only way big business remains profitable is through the cutting of U.S. jobs and offshoring to Third World countries whose workers can’t afford what they have to sell.”

Another job hunter on Monster.com, who calls himself “beltsinc,” said that while consumers are on a rampage, many of the products they are buying are made in other countries and thus the increase in sales is not leading to an increase in orders and jobs at U.S. companies.

“It’s not hard to figure out why unemployment is where it stands today,” he said. “As long as people continue to shop for the least-expensive merchandise available, they will continue to support the cheap imports.”

Another job hunter who has been unemployed for almost two years noted that many of the stores where consumers are spending are offering only temporary jobs for sales workers, with no health insurance or other benefits.

“Competition for lousy-wage jobs is steep these days,” said “rf wannabe,” the third job searcher. “Where I live, 1,400 people applied for 30 jobs at Linens ‘n Things. It’s scary, but that’s the reality.”

Anthony Karydakis, economist at Banc One Capital Markets, called the dour mood of consumers — particularly those who are touched by joblessness — “a disquieting development” and one that does not bode well for the economy. The wariness of businesses and consumers could turn into a self-fulfilling retrenchment in growth, he said.

“The hesitancy to add to payrolls underlines the tentative nature of the pick-up,” said Peter E. Kretzmer, economist with Bank of America. “It remains crucial that consumer-spending growth remain solid” and that businesses join in the spending to secure a lasting recovery.

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