Car buyers push retail sales to record high

By Martin Crutsinger
Associated Press

WASHINGTON — Consumers snapping up zero-interest car deals sent retail sales surging by a record amount in October, only a month after terrorist attacks stopped the economy cold.

Most analysts said the 7.1 percent jump had not shaken their view that the economy was pushed into recession by the Sept. 11 attacks, although some said the downturn is likely to be milder than feared.

The traditional arbiter of when recessions begin and end, the National Bureau of Economic Research, indicated it might date the slump back to March, when employment peaked.

The Commerce Department report yesterday said the gain in retail sales was led by a record 26.4 percent surge in auto sales as consumers stampeded to take advantage of zero-interest financing.

The overall gain was almost triple what economists had been expecting, and stood as a sharp contrast to a string of bleak reports after the Sept. 11 terrorist attacks.

"It looks like consumers are already learning to live with terrorism at home and abroad," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.

But most analysts said they believed the forces dragging the economy down remained so strong that the one-month surge in retail sales would not be enough to lift the economy back into positive territory this quarter.

The National Association for Business Economics released a new forecast yesterday predicting the gross domestic product would decline by 2 percent in the current quarter. The GDP fell at a 0.4 percent rate in the third quarter.

The NABE's 33 forecasting economists said they believed the country was in a recession, but that it would be mild and brief, ending early next year.

The National Bureau of Economic Research, the university economists assigned the job of calling recessions, has not yet made its call.

However, members of the NBER panel said yesterday it was increasingly likely they would rule a recession had begun, with some suggesting they would date the start to March 2001.

"The evidence seems overwhelming right now that we are in a recession. But even though the evidence is awfully strong, it is not 100 percent," said Harvard's Jeffrey Frankel, one of six economists on the panel.

If the panel does determine that a recession began in March, it would mean the country's record-long economic expansion ended on its 10th birthday. The last recession began in July 1990 and ended in March 1991.

The retail sales report showed the 7.1 percent October increase followed a 2.2 percent decline in September, a drop influenced by the virtual halt in shopping in the days following the terrorist attacks. It was the largest one-month increase in government records dating back to 1968.

Most of the strength came from the surge in auto sales, reflecting the financing deals offered to lure customers back into showrooms. General Motors has announced it will extend such deals through Jan. 2, and other automakers are expected to follow suit.

Excluding car sales, overall retail sales in October rose 1 percent. Sales at clothing stores increased 6.9 percent, erasing a 5.9 percent drop in September, while sales at hardware stores, sporting goods establishments and bars and restaurants all posted increases.

Some analysts said the big gain in retail sales makes it less likely the Federal Reserve, which has cut interest rates 10 times this year, will feel the need for another cut when it meets Dec. 11.

But others predicted at least a quarter-point cut to boost consumer confidence in the final weeks of holiday shopping.

David Wyss, an economist at Standard & Poor's in New York, said he believed retail sales would do reasonably well this Christmas, but he cautioned that the full impact of the surge in unemployment, which hit 5.4 percent this month, has yet to be felt.

"The major remaining concern is further terrorist attacks. But on the whole I think the recession will turn out to be very mild," Wyss said.