Skip to Content, Navigation, or Footer.
Support the IDS in College Media Madness! Donate here March 24 - April 8.
Friday, March 29
The Indiana Daily Student

Consumer confidence dips

WASHINGTON -- Cautious consumers, shaken by the turbulent stock market and a possible war with Iraq, tightened their belts in September and pushed down sales at the nation's retailers by the largest amount in 10 months.\nThat news from the Commerce Department along with a separate, preliminary report Friday that showed Americans' confidence in the economy sank to a nine-year low in October, raised new questions about people's willingness to spend in the months ahead, including the holiday shopping season. \nConsumer spending is the economy's lifeblood, accounting for two-thirds of all economic activity in the United States. Throughout last year's recession consumers kept buying, and they have been the main force keeping the economy going so far this year. \nWhile most economists don't believe consumers will cut back spending dramatically and throw the economy back into recession, some believe they will have considerably less energy in the current October-December quarter and slow down the economic recovery. \n"Consumer spending is fragile,'' said Sal Guatieri, economist with Bank of Montreal. \nBut on Wall Street, stocks soared, lifted by positive earnings news from General Electric and a brokerage upgrade of IBM. The Dow Jones industrial average climbed 316.34 points to close at 7,850.29. \nThe 1.2 percent drop in retail sales in September from the previous month represented the largest decline since November and came after a solid 0.6 percent rise in August. \nMuch of the weakness in September's retail sales reflected a sharp 4.8 percent drop in automobile sales, but consumers also trimmed spending on furniture, electronics and clothes. \n"I think consumers were standoffish or tightfisted because of the uncertainties plaguing the U.S. economy as well as the financial markets,'' said Richard Yamarone, economist with Argus Research Corp. \nIn other economic news, a preliminary report from the University of Michigan showed that its consumer sentiment index dropped to 80.4 in October, the lowest level since the fall of 1993, from 86.1 in September, said economists. \n"The nine-year-low reading ... will reinforce fears that consumers are about to stop spending,'' said Maury Harris, chief economist at UBS Warburg. "The weakness can hardly bode well for consumption this autumn, but the link between sentiment and spending is only approximate.'' \nEconomists believed the drop in both confidence and retail sales reflected consumer anxiety over the roller coaster stock market, heightened fears about a war and concerns about the sluggish jobs market. \nA third report suggested that inflation remains low, which economists read as evidence inflation currently is no threat to the economy. Wholesale prices edged up by just 0.1 percent in September after being flat in August, the Labor Department reported. \nThe good news on inflation gives Federal Reserve policy-makers leeway to keep short-term interest rates low or possibly nudge them lower. \nWorried about the pace of the economic recovery, the Federal Reserve, over the objections of two members, decided last month to hold short-term interest rates steady at 41-year lows. The two dissenters favored a rate cut, which would have been the first of the year. \nEconomists offered mixed opinions on whether the Fed will cut rates at its next meeting, on Nov. 6. \nMany economists believe the economy picked up momentum in the third quarter, growing at a rate of at least 3 percent. But, many also think it will lose steam in the current quarter. \nIn September, auto sales dropped 4.8 percent, after a 1.5 percent rise, even as companies extended free-financing offers. \nExcluding automobile sales, retail sales inched up by 0.1 percent in September. \nClothing store sales in September fell 0.9 percent. Furniture sales dropped 0.5 percent. Sales of electronics and appliances declined 0.3 percent. Bars and restaurants saw sales go down 0.4 percent, as did food stores. At general merchandise stores, including department stores, sales dipped 0.1 percent. Gasoline station sales were flat. \nThere were some bright spots: Sales of building and garden supplies rose 1.8 percent. Sales of health and beauty products rose 1.5 percent, as did sales at sporting goods, books and music stores. \n"The winners were building materials, as households began to fix up their newly purchased homes, sporting goods, books, music and hobbies, as people stayed home more, and health care, as people tried to ease their headaches over the stock markets," said economist Joel Naroff of Naroff Economic Advisors. "Just about every other retailer suffered falling sales"

Get stories like this in your inbox
Subscribe