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The Honolulu Advertiser
Posted on: Monday, February 11, 2002

Consumer spending rises

By Carlos Torres and Alex Tanzi
Bloomberg News Service

WASHINGTON — Consumers are spending enough to help factories out of an 18-month slump and lift the economy out of recession, reports this week are likely to show.

While people are buying fewer cars after near-record purchases last year, other retail spending probably rose for the first time in three months in January.

Consumer confidence began to rebound in October from the terrorist attacks on the U.S. and may now be at a 13-month high.

General Motors Corp. and Winnebago Industries Inc. already have plans to make more vehicles because of improved demand. Growth in retail sales increases the likelihood that production of other consumer goods will rise.

"The manufacturing setback is now largely behind us," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis. "From here on we should see positive and more encouraging numbers indicating that economic recovery is on the way."

The Commerce Department's report Wednesday on January retail sales will probably show a 0.3 percent rise when automobiles are excluded, after declines of 0.1 percent in November and 0.2 percent in October, based on median of 36 forecasts in a Bloomberg News survey.

Retailers' sales at stores open at least a year rose 5.2 percent in January, the largest monthly increase since April 2000, according to company reports assembled last week by the Bank of Tokyo-Mitsubishi Ltd. The gain was led by an 8.3 percent increase at Wal-Mart Stores Inc.

When car sales are added, the government report is likely to show that sales dropped 0.2 percent in January after a 0.1 percent decline in December. Spending on cars decreased as discounts began to replace no-interest financing. Automakers nonetheless sold 17.2 million vehicles in 2001, the second-best year on record, according to industry data.

The pace of all spending will "stop the bleeding in manufacturing, and that is what the end of a recession means," said David Orr, chief economist at Wachovia Securities Corp. in Charlotte. "Last year was the year of the consumer. This will be the year of the manufacturer."

Industrial production in January probably fell 0.2 percent after a 0.1 percent drop the previous month, according to the median of 39 forecasts in a Bloomberg News survey. Still, the drop is smaller than the average 0.7 percent for September-November. The Federal Reserve issues the report Friday.

Production "has to stop getting worse before it can start getting better," Orr said. "That is the stabilization phase we are in right now."

Some companies already are gearing up assembly plants. General Motors said last month it is boosting first-quarter production plans by 20,000 vehicles to 1.32 million, an 8.7 percent rise from the year-earlier period. Market analyst Paul Ballew said most of the company's truck plants already are running at maximum capacity.

More Winnebagos

Winnebago, the biggest maker of motor homes, said Thursday it will increase manufacturing capacity by about 30 percent, its largest expansion, with construction to begin late this quarter or early next quarter. The increase will enable to company to make 13,000 vehicles a year, compared with 11,000 now.

A preliminary University of Michigan survey, due Friday, is expected to show consumer confidence rose to 94 this month, the highest level since January 2001, from 93 the previous month. The level of optimism helps determine spending, which accounts for two- thirds of the economy.

Because the recession has eroded demand, inflation is tame. Prices paid to U.S. factories, farmers and producers probably rose 0.1 percent last month after a 0.7 percent drop in December, analysts said. That would be the first increase in four months.

Excluding volatile food and energy prices, the index rose 0.1 percent in January after falling 0.1 percent, the report from the Labor Department, due Friday, will probably show.

"Producer inflation is virtually nonexistent," said Steven Wood, chief economist at FinancialOxygen Inc. in Walnut Creek, California.

A Labor Department report Thursday is likely to show that prices of imported goods were unchanged in January after three consecutive declines.

A report from the Commerce Department on Thursday will round out the data on the extent to which inventories were whittled down last quarter. December business inventories probably fell 0.5 percent after a 1 percent decline in November.

First-time claims for state unemployment benefits probably rose to 380,000 last week, a gain of 4,000, after dropping by 15,000 the week before. It would be the sixth consecutive week at less than 400,000, which hasn't happened since March-April 2001, when the recession was getting under way. The Labor Department issues that report Thursday.