- The Washington Times - Saturday, November 1, 2008

Consumer spending fell again in September, the Commerce Department reported Friday, marking the third decline in four months as retailers brace for a slow holiday season.

With consumers keeping a tight grip on their wallets and pocketbooks, retailers are slashing prices to entice worried shoppers into their stores. But retailers’ prospects for the holidays are darkening as the days get shorter.

“The [September] weakness in real consumer spending means the fourth quarter began in a very weak position,” said Mark Vitner, senior economist at the Wachovia Economics Group. “October was likely another difficult month, and forecasts for the holiday shopping season are exceptionally cautious.”

The National Retail Federation predicted in October that holiday sales will increase only 2.2 percent this year, which is half the 10-year average gain of 4.4 percent.

Online sales this holiday season will likely grow at the slowest rate since Forrester Research began tracking Internet commerce eight years ago. Compared to gains between 20 percent and 25 percent during the past few years, online sales should rise by only 12 percent to $44 billion this holiday season, the Cambridge, Mass., research firm projected.

“The Christmas season is upon us, just as we are entering the harshest part of the recession,” said Patrick Newport, U.S. economist for IHS Global Insight. “Consumers are not in a spending mood.”

If the level of consumer confidence is any indication, consumer spending is not likely to pick up any time soon. According to the latest University of Michigan/Reuters index, released Friday, U.S. consumer sentiment suffered a record decline in October, plummeting from 70.3 in late September to 57.6 in late October. The Conference Board reported earlier this week that consumer confidence in October had plunged to its lowest level in the 41 years the statistic has been calculated.

Despite the dismal economic reports, Wall Street showed decent gains Friday. The Dow Jones Industrial Average gained 144.21 points (1.6 percent) to close at 9,325.01, while the Standard & Poor’s 500 stock index rose 14.68 points (1.5 percent) to 968.75, and the Nasdaq composite index increased 22.43 points (1.3 percent) to end the day at 1,720.95.

Crude oil futures increased $1.85 per barrel Friday to end the month at $67.81 per barrel. However, October’s 33 percent plunge in oil prices marked the steepest monthly decline ever.

Friday’s report on consumer spending in September confirmed Thursday’s report on third-quarter economic growth, which revealed that a 3.1 percent decline in consumer spending during the July-September period led to a 0.3 percent drop in gross domestic product (GDP), the broadest measure of economic activity.

Households have been battered by plunging home values, the stock market swoon and stagnant incomes. Tightened credit standards have made matters worse for consumers.

Home values have declined more than 20 percent nationwide from their July 2006 peak, according to the S&P;/Case-Shiller U.S. National Home Price Index. In some metropolitan areas, home prices have declined more than 35 percent.

Meanwhile, the broad-based S&P; 500 stock index has shed more than 35 percent of its value since the beginning of the year and is down about 40 percent from its peak last October.

Personal incomes have declined considerably in recent months, notwithstanding September’s 0.1 percent gain. After-tax incomes fell 2.5 percent in June, 1.6 percent in July and 1 percent in August. Median household income totaled $50,233 in 2007, lower than its 2000 level of $50,557.

The dramatic slowdown in the economy has eased fears of inflation significantly.

In the Federal Reserve’s statement Wednesday announcing it had lowered its target interest rate to 1 percent, the central bank’s policy committee declared, “In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the committee expects inflation to moderate in coming quarters to levels consistent with price stability.”

Another government report on Friday provided further evidence that the threat of inflation has abated. The Labor Department reported that its employment cost index increased 0.7 percent in the third quarter.

“Slow economic growth and a weak labor market continue to weigh on wages and salaries,” said Ankia R. Khan, an economist at Wachovia Economics Group. “The Fed still has the green light to ease as labor inflation pressure should not present a problem.”

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