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10/16/2003

Shoppers cool off after buying binge

The Associated Press

WASHINGTON — America’s shoppers took a bit of a breather in September, dropping sales at the nation’s retailers by 0.2 percent.

Although the dip in retail sales reported by the Commerce Department on Wednesday was the first since April, it came after consumers, aided by President Bush’s third tax cut, went on a buying binge in July and August.

Retail sales went up by a strong 1.4 percent in July and then by 1.2 percent in August, according to revised figures. The increase in August’s sales turned out to be two times bigger than the 0.6 percent rise that the government first reported a month ago, and the advance in July also was slightly larger than previously estimated.

Separately, the Federal Reserve’s survey of business conditions in September and early October found that the economy picked up speed.

“Consumer spending generally strengthened, though most districts report a recent pullback in auto sales,” the Fed survey said. Eight of the Fed’s 12 regions reported improving sales trends. Those eight regions were: New York; Philadelphia; Chicago; St. Louis; Minneapolis; Kansas City; Dallas; and San Francisco. Retailers, the Fed said, are generally anticipating modest sales gains for the holiday shopping season.

Bush said the tax cuts are helping the economy. “We’re overcoming the challenges we have faced,” he said in California. “Our economy is growing.”

On Wall Street, though, stocks moved lower. The Dow Jones industrials lost 9.93 points to close at 9,803.05.

In the monthly retail report, economists were predicting that the brisk performance registered in July and August just couldn’t be maintained in September; they had forecast a sales dip of 0.1 percent.

While shoppers were more selective in September, they still had an appetite to spend.

Excluding sales of automobiles, which fell by 1.6 percent in September, sales by all other merchants went up by a modest 0.3 percent — close to economists’ forecast for a 0.4 percent increase in that category.

“I actually think this is a very encouraging report. It certainly doesn’t show consumers are pulling back in any material way,” said Bill Cheney, chief economist at John Hancock Financial Services. “It pretty much says that despite all the gloom in the job market, consumers are still spending.”

The decline in automobile sales last month, which economists predicted, came after a solid 0.9 percent advance in August.

The report showed that in September shoppers also trimmed spending on electronics, sporting goods and home furnishings, but they boosted spending on building materials, clothes, health and beauty products and food.

Consumers, whose spending accounts for roughly two-thirds of all economic activity in the United States, have kept their pocketbooks and wallets sufficiently open since the 2001 recession to keep the economy going. And, they will play an important role in determining the strength of the economic recovery.

“Even with the minor decline in spending in September, on balance, consumer spending remains very solid,” said Lynn Reaser, chief economist at Banc of America Capital Management. “Consumers are carrying the economy to a higher level of performance.”

September’s sales, in fact, are up 7.5 percent compared with the same month a year ago, something especially heartening to economists.

Amid signs that the economy is picking up momentum, the Federal Reserve is expected to hold a main short-term interest rate at a 45-year low of 1 percent when it meets next on Oct. 28, economists said. Near rock-bottom rates may motivate consumers and businesses to spend and invest more, thus boosting economic growth.

Analysts believe the economy grew at a brisk pace of at least 5 percent in the third quarter and will probably expand at a 4 percent rate in the current quarter. Even so, economists predict that the lackluster job market will be slow to show sustained improvement.

The nation’s unemployment rate now stands at 6.1 percent and economists believe it could hover in that range or possibly creep up in coming months if a flood of job seekers stream into the market because of a stronger economic climate, economists said.