Retail sales drop by 1.6 percent

Friday, March 14, 2003

The Associated Press

WASHINGTON -- Shoppers faced with snow storms, job cuts and war worries were tightfisted in February, driving down sales at retailers by the largest amount in 15 months.

The latest snapshot of retail activity released by the Commerce Department Thursday added to fears the economy could slide back into a new recession, economists said.

Retail sales fell 1.6 percent from the previous month, with weakness widespread. Building and garden supply stores posted a record drop.

"You have to be living in a cave not to feel spooked and anxious," said Bill Cheney, economist at John Hancock. "Losing your job or having to pay twice as much for gas makes a dent in what people will spend on other things."

February's performance was weaker than analysts expected and marked a big pullback by consumers from January, when sales rose by 0.3 percent.

But on Wall Street, investors shrugged off the report and rallied on the hope that a war against Iraq would be quick and successful. The Dow Jones industrial average surged 269.68 points to close at 7,821.75. It was the Dow's biggest one-day gain in five months.

Separately, the Labor Department reported new claims for unemployment benefits last week fell by a seasonally adjusted 15,000 to 420,000. Even with the decline, the level of claims pointed to a stagnant job market.

The more stable, four-week moving average of claims, which smooths out weekly fluctuations, rose last week to a two-month high of 419,750.

After sliding into a recession in 2001, the economy has struggled to return to full health. Any growth has come largely from consumers.

But an ailing job market, higher energy prices, anxiety about war and a turbulent stock market are making consumers more cautious.

Snow storms in the East dealt a blow to February's sales. The government's decision to elevate the terror alert during the month probably also contributed to keeping shoppers away from the malls.

"Consumers were downbeat," said Richard Yamarone, economist with Argus Research Corp. "There was not much for the consumer to be happy about last month."

Some economists believe the Federal Reserve might cut interest rates -- which are already at 41-year lows -- when it meets Tuesday. That view was spurred by last week's unsettling employment report that showed that the economy lost more than 300,000 jobs in February.

Other economists believe Fed policy-makers will leave rates unchanged, saving some of their ammunition in case a war breaks out.

President Bush, mindful of the political price his father paid in 1992 for a weak economy, has offered a plan made up mostly of tax cuts to help energize the economy.

Political analysts generally agree that voter concern about the economy contributed in large part to the first President Bush's loss to Democrat Bill Clinton.

The 1.6 percent decline in retail sales was the biggest since November 2001, when the economy was still reeling from the Sept. 11 attacks.

Sales at automobile dealers dropped by 3.4 percent in February from January, the biggest decline in five months.

Bad weather contributed to "sales on the East Coast essentially slowing to a crawl during the President's Day weekend," said Paul Taylor, chief economist at the National Automobile Dealers Association.

Top automobile makers recently said they would pare production as a result of concerns that favorable financing deals and other incentives would not sufficiently motivate buyers.

Excluding sales of automobiles, which can swing widely from month to month, overall retail sales fell by 1 percent in February, a weaker showing than economists were forecasting.

At furniture stores, sales fell by 1.6 percent in February from the previous month. Building and garden supply stores saw sales plunge by a record 7.5 percent. Sales of electronics and home appliances went down by 0.5 percent.

At clothing stores, sales declined by 3.6 percent last month. Sales of sporting goods, music, books and crafts went down by 1.6 percent. Sales at bars and restaurants fell by 0.5 percent.

For people looking to buy a home or refinance the one they own, however, there was good news: Rates on 30-year mortgages dropped to a new low of 5.61 percent this week, the mortgage company Freddie Mac reported.


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