Americans head to malls for spree as consumer confidence rebounds

Saturday, October 14, 2006

WASHINGTON -- Bolstered by falling gasoline prices, consumers headed back to the malls to shop in September. And with confidence rebounding sharply this month, strong sales are forecast for the all-important holiday period.

Overall, retail sales fell by 0.4 percent in September, the Commerce Department reported Friday. But that decline was skewed by the good news that gasoline prices plummeted last month, sending sales at service stations down by a record 9.3 percent.

Excluding service stations, retail sales posted a solid increase of 0.6 percent, the government said, as consumers used the money they saved on gasoline to spend on other items.

"Households continue to empty their wallets at a very rapid pace," said Joel Naroff, chief economist at Naroff Economic Advisors, a private forecasting firm.

A second report Friday showed that consumer confidence, which had been depressed by surging gasoline prices, posted a strong rebound in October.

The University of Michigan's confidence survey rose to 92.3 in October, according to a preliminary reading, up from 85.4 in September. The October confidence level, the best showing in 15 months, was far better than economists had been expecting.

Analysts said the rise in confidence, which is being fueled by falling gasoline prices, should translate into solid consumer spending during the upcoming holiday sales season and help keep the nation from stumbling into a recession.

Since peaking above $3 per gallon in early August, the nationwide average for regular gasoline has fallen by 78 cents per gallon.

Nariman Behravesh, chief economist at Global Insight, said this decline is like a huge tax cut that will give consumers nearly $100 billion more to spend on other items.

The economy skidded to a sharp slowdown in the spring under the impact of soaring gasoline prices, rising interest rates and a cooling housing market, raising fears of a possible recession.

Now, with gasoline prices falling and the Federal Reserve putting its two-year credit tightening campaign on hold, economists believe that growth will slow in the second half of the year but a recession will be avoided.

Behravesh said the overall economy, which grew at a 2.6 percent rate in the spring, probably grew by just 1.8 percent in the third quarter but should rebound to around 2.5 percent growth in the final three months of this year.

"Wage growth is improving, the stock market is doing well and gasoline prices are down. All of this is very good news for the consumer," he said.

For September, retail sales jumped 1.1 percent at department stores and were up an even larger 3 percent at specialty clothing stores, the biggest increase in this category in 11 months, as cooler weather last month put shoppers in the mood to buy the new fall clothing lines.

The Federal Reserve reported Thursday in its latest snapshot of regional business conditions that a number of areas of the country reported solid back-to-school sales.

Auto sales were flat in September following a 0.4 percent drop in August. Analysts said that automakers reported a rebound in unit sales in September but this did not pick up heavy discounting to move a backlog of unsold cars.

The nation's automakers have struggled this year with a glut of sport utility vehicles and other gas-guzzling cars.

Excluding auto sales, retail sales were down 0.5 percent, reflecting the big drop in the amount drivers were spending at service stations.

In addition to the big gains at department and clothing stores, sales also increased at furniture stores, hardware stores, sporting goods stores and restaurants and bars. Sales fell at grocery stores.

The various changes left retail sales at a seasonally adjusted $366.2 billion in September, down from $367.7 billion in August.

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