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Retail Sales Up 0.8% in August as Fears Are Eased

Economy: Low interest rates and tame inflation help to fuel consumers' surprisingly strong spending on big-ticket items such as cars.

September 14, 2002|From Reuters

U.S. consumers shrugged off economic anxieties and boosted spending on big-ticket items such as cars and furniture as they reaped the benefits of low inflation and cheap interest rates, reports showed Friday.

Analysts said consumers' willingness to shop even as some measures show shaky confidence could help to lift the economy out of its doldrums.

Data from the Commerce Department showing a 0.8% jump in August retail sales reinforced expectations that U.S. gross domestic product could post a growth rate above 3% in the third quarter, which ends this month.

"August should not have been a good month for retailers, but it sure looks like it was," said economist Joel Naroff of Naroff Economic Advisors in Holland, Pa.

"This report tells us the economy is not falling apart by any means," he said.

August's bigger-than-expected retail sales gain came on the back of gains of 1.1% in July and 1.4% in June.

Economists were pleasantly surprised by the data in light of fairly downbeat anecdotal reports from retailers.

The rise also seemed to defy beliefs that sagging consumer confidence would prompt people to shut their wallets.

The University of Michigan's preliminary September consumer sentiment index fell to 86.2, which is the index's lowest level since November, from a final reading of 87.6 in August.

That was below economists' forecasts of 87.5.

Analysts have linked the weak confidence number to worries about the anniversary of the Sept. 11 attacks and mounting talk of war with Iraq, coupled with an anemic job market.

"Follow the money," said Neal Soss, chief economist at Credit Suisse First Boston in New York. "Watch what consumers do, not what they say."

Low interest rates and bargain-hunting amid tame inflation have helped to fuel strong consumer spending.

The Labor Department said Friday that its producer price index, a gauge of inflation at the wholesale level, was flat in August.

The core rate, which excludes volatile food and energy prices, dipped 0.1%.

Economists said this confirmed that inflation is dormant and the Federal Reserve has little to fear from price pressures if it wants to keep interest rates low in order to stimulate economic growth.

The Fed meets Sept. 24. Although there had been talk in the last few weeks that the central bank might ease rates further from their current four-decade low of 1.75%, a majority of analysts are convinced that it will leave rates unchanged.

The latest data left the impression that the economy is holding up well enough without extra tonic.

Excluding automobiles, retail sales rose 0.4% after a 0.2% increase in July and a 0.4% rise in June.

Reports from car manufacturers released earlier this month had left little doubt that this component of the retail sales report would shine. With no-interest loans and cash-back deals enticing customers, car sales reached an annual rate of 18.7 million units last month, the highest of the year and the second-highest monthly sales rate on record.

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