Record jump in retail sales buoys economy
October is biggest-ever month for auto sales - and outlook for holiday spending may be brightening as well.
Tempted by zero interest on new car loans, American consumers are digging deep into their pockets.
Retail sales soared a record 7.1 percent in October as shoppers showed resilience in the face of a war abroad and concerns about anthrax and other dangers at home.
Separately, retailers said they expect holiday-season sales to be up modestly from last year, despite the deepening economic troubles of 2001.
Some observers saw the news as an indication that the slump in the economy may be short-lived.
"It takes an awful lot to stop Americans from spending," says David Wyss, chief economist for Standard & Poor's in New York.
Another economist, Peter Kretzmer, was sufficiently impressed by the number to wonder if the economy was reversing itself so fast that there may be no official recession.
The Federal Reserve may not even feel the need to trim short-term interest rates again when its policymakers meet in early December, speculates Mr. Kretzmer, an economist at Banc of America Securities in New York.
The Fed decision could hang on further signs of a consumer rebound in coming numbers on spending for such services as brokerage fees, medical services, business services, and travel.
"The benefit of all the monetary easings is beginning to be felt," Kretzmer figures.
The biggest one-month gain ever recorded in retail sales was mostly due to a record 26.4 percent jump in auto sales. Minus car sales, retail sales were less gaudy - up just 1 percent in October from September.
Still, the retail numbers, minus autos, are almost back to their August level, before the terrorist attack, and before the war in Afghanistan. They are up 1.6 percent from the level a year ago - or roughly flat once inflation is factored in.
The sales level, either with or without autos, was considerably higher than economists expected.
"The consumer is not fearful and certainly not lacking in confidence," says Susan Hickok, chief economist of Prudential Economics in Newark, N.J.
She sees the economy growing at a vigorous 5 percent annual rate in the first quarter of next year.
October's retail and food-service sales, including autos, were up a solid 7.5 percent from a year before. By contrast, September saw a 2.2 percent drop, the Commerce Department noted yesterday.
"Consumers sure bounced back in a hurry," says Mr. Wyss of Standard & Poor's.
Car buyers are getting not only cheap financing, but also cheap gasoline.
OPEC oil ministers ended informal talks Wednesday in Vienna without a firm decision to cut the output of crude oil by more than 1 million barrels per day. Such a move could push gas prices up again. Though Wyss suspects the cartel will at some point trim output to boost prices, in the meantime, he notes: "The money you don't spend at the gas stations, you have to spend at the mall."
The National Retail Federation sees a somewhat happier picture now for key holiday spending. It sees sales in November and December increasing 2.5 to 3 percent. That's weak, but better than expected a month ago.
That outlook is based on a mid-October household survey. Consumers plan to spend an average of $940 on gifts and holiday items.
A separate survey by the Consumer Federation of America and the Credit Union National Association found that 28 percent of respondents are planning to spend less this holiday season than last year, but 57 percent plan to spend the same.
Some analysts foresee more online shopping because of safety concerns.