- The Washington Times - Friday, November 12, 2004

Consumer confidence snapped back after the election, and retail spending was strong for a second straight month — signs that shoppers, the stalwarts of the economy, are shrugging off high energy prices and moving on.

Consumer sentiment early this month rebounded strongly from a three-month slump, according to a measure published by the University of Michigan yesterday, after reports of accelerating job growth and an unexpectedly smooth resolution of the hard-fought presidential contest.

Even before consumers breathed a sigh of relief that the election was over, they had stepped up spending on everything from food, clothing and cosmetics to eating out at restaurants in October, a separate Commerce Department report showed.

Sales at retailers other than auto dealers and gas stations, where sales have been volatile and price-driven, advanced at a solid 0.5 percent pace, the department said, after a robust 1.6 percent sales gain in September that was revised up from 1.5 percent. Overall, retail sales rose 0.2 percent.

The news bolstered optimism in financial markets and surprised economists who had expected high energy prices and lackluster income growth to dampen consumer spirits this fall.

“Consumer spending is quite solid, and with jobs possibly being created again, we just might have a decent holiday shopping season,” said Joel Naroff of Naroff Economic Advisers.

“The fourth quarter is off to a pretty decent start,” said Dick Rippe, chief economist with Prudential Securities, estimating that consumer spending, which makes up about 70 percent of economic activity, is humming along at about a 3 percent rate.

The snapback in consumer confidence in particular was welcome to the stock market, where many investors had feared consumers might capitulate to high energy prices and worries about jobs.

The Dow Jones Industrial Average leapt 69 points to 10,539, continuing a strong rally that has lifted major stock indexes by 8 percent in the last three weeks. The blue-chip Standard & Poor’s 500 Index is at its highest level since August 2001.

“Some of this rebound may be due to the elections being over and the airwaves not having as much contentious rhetoric on them,” Mr. Rippe said. “Also, lower oil prices and gasoline may be helping a little bit.”

Premium crude prices yesterday were down more than $8 from a record high of $55.67 set in New York trading last month. Average gas prices have eased some in the last month and settled in around $2 a gallon.

Mr. Rippe noted that the consumer-spending spree last month was focused on smaller-ticket items, with sales of autos, appliances and big-ticket goods other than furniture falling during the month.

But given the brisk 4.6 percent rate of consumer-spending growth this summer, many economists had expected consumers to take a rest, making yesterday’s reports seem surprisingly good, he said.

The sales report prompted some Wall Street firms to increase their estimates of growth in the final quarter of the year. Morgan Stanley raised its spending forecast from 2.3 percent to 3.3 percent, and said economic growth would post in at 3.9 percent.

Economists said that the upbeat consumer-spending figures appear to mask differences between the way affluent households and low-income consumers are coping with high energy prices.

Less-affluent consumers generally are hurt more by high energy prices and have fewer alternatives available to avoid them.

Wal-Mart Stores Inc., which has millions of low-income customers and whose sales soared during the 2001 recession, this year has blamed high energy prices for a lackluster performance.

Meanwhile, a rival discounter, Target Corp., which attracts more upscale customers, reported strong sales growth of 4.5 percent during the summer quarter.

Lynn Reaser, chief economist at Banc of America Capital Management, said the “significant dichotomy” between income groups is likely to lead to more moderate consumer spending in the months ahead.

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