020331 Consumer Spending Rises in February

Washington - Consumers spent more freely in February and provided a modest boost for the nation's retailers.

Though the 0.3 percent rise in sales reported by the Commerce Department wasn't as big as many economists had anticipated, the advance still was the largest in four months. And, the increase came after shoppers sharply cut back spending on cars in January, contributing to a 0.3 percent drop in overall retail sales that month.

The fact that consumers didn't close their pocketbooks and wallets in February and instead spent solidly - - though not lavishly -- on big-ticket items, including cars, furniture and appliances, was considered encouraging.

"Households continue to make the major purchases that would normally falter if demand was not holding up," said economist Joel Naroff of Naroff Economic Advisors.

But on Wall Street, the weaker-than-expected sales figures sent stocks tumbling. The Dow Jones industrial average lost 130.50 points to close at 10,501.85, its first decline in four sessions.

Consumer spending accounts for two-thirds of all economic activity in the United States and its strength during the economic slump has been a key reason why the economy, which fell into recession in March 2001, didn't sink deeper.

Economists predicted consumers would continue to spend -- albeit modestly -- and help the recovery. A less volatile stock market, an improved jobs market and tax refunds now arriving in mailboxes bode well for more buying ahead, they said.

"Consumers will lead the economy into recovery into the spring and summer months," said an optimistic Stuart Hoffman, chief economist with PNC Financial Services Group.

While Federal Reserve Chairman Alan Greenspan repeated his belief that a recovery is well under way, he renewed his warning that Americans should not expect a sizzling rebound.

Unlike past recessions, consumers continued to spend throughout this one, meaning they probably will not have a lot of pent-up demand to spend with abandon as the economy recovers.

"As a consequence, although household spending should continue to trend up, the potential for significant acceleration in activity in this sector is likely to be more limited than in past cycles," Greenspan said in a speech to the Independent Community Bankers of America.

Low interest rates, free-financing offers, extra cash coming from a refinancing boom in home mortgages and heavily discounted merchandise all were factors inducing Americans to spend during the slump. In February, mild weather also helped out, motivating shoppers to get out and hit the malls.

To revive the economy, the Federal Reserve slashed interest rates 11 times last year. But policy-makers opted to leave interest rates alone in January and they are expected to do the same at their meeting next week, analysts said. Some believe the Fed next week will change its current policy directive, which holds the door open to rate cuts in the future, to one that suggests the Fed may be staying on the sidelines.

Meanwhile, the National Bureau of Economic Research, the recognized arbiters of when recessions begin and end, in a new posting on its Web site, pointed out that businesses added jobs for the first time in seven months in February, a key ingredient when it determines turning points in the U.S. economy.

"Other signs indicate that the decline in activity that began last year may be coming to an end," the panel said, adding that it would say at a future date when the recession was over.

Wednesday's retail sales report showed that consumers were more enthusiastic buyers of cars and trucks in February, pushing sales up by 0.4 percent. In January, they trimmed such spending by 4.6 percent as free-financing offers waned.

Sales of furniture and home furnishings rose by 1.5 percent and sales of electronics and appliances went up 1.1 percent last month, in part reflecting the impact of the housing boom, economists said.

Americans also ate out more last month. Sales at restaurants and bars rose 1.1 percent, an improvement over the 2.5 percent sale decline posted in January.

But sales at sporting goods, hobby shops and book and music stores fell 1.6 percent in February, after a 2.9 percent rise. Despite mild weather, building and garden supplies stores saw sales dip by 0.4 percent in February, following a 2.8 percent advance. After rising in January both sales of health and beauty products and clothing edged down 0.1 percent.

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com