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News > Economy
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U.S. retail sales plummet
graphic October 12, 2001: 10:21 a.m. ET

Sales grim in September, but consumer sentiment rebounds in October.
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  • Federal Reserve cuts interest rates for 9th time in 2001 - Oct. 2, 2001
  • Recession could follow terror attacks, but it might not last long - Sept. 20, 2001
  • U.S. retail sales, wholesale prices rise in August; industrial output falls - Sept. 14, 2001
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  • Retail sales report
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    NEW YORK (CNNmoney) - Retail sales in the United States plunged in September, the government said Friday, as the aftershocks of last month's terrorist attacks cut far deeper into consumer spending than analysts expected.

    The Commerce Department said retail sales fell 2.4 percent in September -- the biggest drop in the nine years the department has reported on sales -- compared with a 0.4 percent gain in August. Economists surveyed by Briefing.com expected sales to fall 0.7 percent.

    "It is a genuine shocker... I don't think anyone anticipated a decline of this magnitude," said Wayne Ayers, chief economist at FleetBoston.

    But equally shocking was an apparent rebound in consumer sentiment in October. The closely watched University of Michigan consumer sentiment survey rose to 83.4 from a reading of 81.8 in September, according to a Reuters report. Economists surveyed by Briefing.com expected the index to plunge to 76.0.

    "This confidence is encouraging and takes some of the pressure off the terrible number we saw with retail sales," said Anthony Chan, chief economist at Banc One Investment Advisors.

    Excluding volatile automobile sales, retail sales fell 1.6 percent. Analysts expected those sales to fall only 0.5 percent, according to Briefing.com.

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      graphic CNNfn's Susan Lisovicz takes a closer look at September retail sales numbers.

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    Separately, the Labor Department reported the Producer Price Index, an indicator of inflation pressure in the world's largest economy, rose 0.4 percent last month after August's 0.4 percent gain. Economists surveyed by Briefing.com expected PPI to rise 0.1 percent.

    Excluding volatile food and energy prices, the "core" PPI rose 0.3 percent after falling 0.1 percent in August. Economists expected core PPI to rise 0.1 percent, according to Briefing.com.

    U.S. stocks opened lower after the retail sales news but gained a little strength after the consumer sentiment report. U.S. Treasury bond prices took the opposite path, rising early and then losing strength.

    To make borrowing cheaper and keep consumers spending, the Federal Reserve has cut its target for short-term interest rates nine times this year. Two of the cuts were made in the weeks after the Sept. 11 attacks that destroyed New York's World Trade Center and damaged the Pentagon.

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    Most economists expect those attacks to push the already sluggish U.S. economy into a recession, and the surprisingly bad retail sales report likely cemented those expectations.

    "This is very, very much in line with the idea we're slipping into a recession," Robert Brusca, chief economist at Ecobest Consulting, told CNNfn's Before Hours.

    Sales of cars, building supplies, clothing and electronics led the plunge in retail sales. Sales at food and beverage stores, health and personal care stores and gas stations rose, as consumers apparently limited their purchases to necessities.

    But the bounce in the University of Michigan's sentiment survey, based on 250 phone interviews, hints that people may start buying big-ticket items sooner than expected.

    "It confirms the belief that the weakness in retail sales was the result of a bunker mentality in the wake of the terrible events of Sept. 11," Banc One's Chan said.

    The survey's expectations index, which tracks consumers' attitudes about the coming year, rose to 77.9 in October from 73.5 in September, according to Reuters. The current conditions index, a gauge of Americans' views of their present financial situation, fell to 92.1 from 94.6 in September, the report said.

    In addition to the Fed's aggressive action, President Bush and Congress are discussing other ways to stimulate the economy, including tax cuts. The combination of the Fed's policy and a boost from lawmakers expected to be worth about $50 billion will likely lead to an economic recovery in 2002, Ecobest Consulting's Brusca said, and most economists agree. [428K WAV] or [428K AIF]

    The Commerce Department said it tweaked its statistical model slightly to take into account the impact of the attacks. The change was in a portion of the model that would automatically try to smooth out temporary disruptions in the economy, such as hurricanes and floods.

    While trying to encourage spending, the Fed must also take care not to make too much money available and fuel inflation. Though Friday's PPI report indicated inflation was slightly worse than expected, most economists still weren't worried about inflation.

    "Since the economy is softening, I expect inflationary pressures to subside," said Oscar Gonzalez, economist with John Hancock Financial Services. "The door is still open for the Fed to continue easing rates, as necessary."

    Gasoline, home heating oil and automobiles led the surge in prices, but economists expect oil and auto prices to fall in coming months, as demand for oil products wanes and automakers cut prices to entice buyers. graphic


    - from staff and wire reports

      RELATED STORIES

    Federal Reserve cuts interest rates for 9th time in 2001 - Oct. 2, 2001

    Recession could follow terror attacks, but it might not last long - Sept. 20, 2001

    U.S. retail sales, wholesale prices rise in August; industrial output falls - Sept. 14, 2001

      RELATED LINKS

    Retail sales report

    PPI report





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