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U.S. retail sales, PPI rise
September 14, 2001: 1:41 p.m. ET

August sales gain meets expectations, but manufacturing recession continues
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NEW YORK (CNNfn) - Retail sales in the United States rose in August, the government said Friday, a sign consumers still were supporting the world's largest economy in the weeks before the worst terrorist attack in U.S. history, but industrial production fell as a manufacturing recession continued.

Retail sales in August rose 0.3 percent to $293.1 billion from $292.1 billion in July, the Commerce Department reported. The rise matched the expectations of economists surveyed by

"It looks like real spending was quite healthy for the start of the third quarter," said Gary Thayer, chief economist with A.G. Edwards & Sons.

In another report, the Federal Reserve said industrial production fell 0.8 percent from July to August, compared with a 0.1 percent drop from June to July. It was the eleventh straight drop for production, the longest such stretch since 1960. Economists surveyed by expected production to fall only 0.2 percent.

"Manufacturing is mired in a deep, prolonged recession," said Steven Wood, economist with FinancialOxygen.

Separately, the Producer Price Index (PPI) rose 0.4 percent last month after July's 0.9 percent decline, the Labor Department reported. Economists surveyed by expected PPI to rise only 0.1 percent in August.

U.S. stock markets were closed Friday, as they have been since terrorist attacks Tuesday that leveled the World Trade Center in New York and damaged the Pentagon near Washington, killing and injuring thousands of people.

Stocks are scheduled to begin trading again Monday. Trading in U.S. Treasury issues resumed Thursday, and prices rose Friday morning, mostly on expectations that the Federal Reserve will cut interest rates soon.

"There has not been much reaction to [Friday's reports] in the market," said Michael Cloherty, fixed income strategist at Credit Suisse First Boston. "This is last month's data, and everything has changed since then."

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Economists have worried that the attacks could send the U.S. economy, which has been on shaky footing for about a year due to slow business spending, into a recession.

Consumer spending, which makes up two-thirds of the economy, has almost single-handedly kept a recession at bay, and the Federal Reserve has cut its target for short-term interest rates seven times this year in an effort to make money available to consumers.

Many economists expect the Fed will cut rates again, possibly soon, to soothe fears after Tuesday's attacks.

"Even if the events of Sept. 11 had not occurred, the economic case for lower interest rates was a strong one," said Bear Stearns chief economist Wayne Angell, a former Fed Governor. "However, as we work toward a reopening of the equity markets, we believe that a cut in rates is even more important than it was before."

Though September sales figures will be much more closely watched to measure the impact of the attacks on consumer spending, August's sales figures were encouraging, showing the strongest gain since a 1.4 percent jump in April. Sales may have gotten a boost from the first advance payments for 2001 tax credit, commonly called "rebates," which were mailed to taxpayers beginning in August.

Retail sales excluding cars and trucks rose even more, posting a gain of 0.5 percent. Retail sales in July were revised upward to show a 0.2 percent gain after previously being reported unchanged.

But the Fed's news about industrial output was discouraging for observers looking for a recovery in the beleaguered manufacturing sector, which has been in a recession for a year.

A prolonged slowdown in spending by businesses has led to an overhang of inventory, which manufacturers must work off before they can raise production again. In the meantime, the industry has cut more than a million jobs during the past 12 months.

On Sept. 4, the nation's purchasing managers said manufacturing activity picked up more than expected in August, raising hopes that a recovery was on the way. Friday's data dim those hopes.

Industry capacity in use fell to 76.2 percent in August from a revised 76.9 percent in July. That was the lowest rate since July 1983, when it posted a 76.1 rate. Economists surveyed by expected capacity utilization of 76.7 percent. 

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In order to keep cutting rates, the Fed has to be convinced it's not running the risk of increasing inflation. So far this year, it hasn't had to worry.

Friday's inflation data, while higher than expected, were still relatively low, as they have been all year. The rise in wholesale prices in August was led by a 1.1 percent jump in energy costs, the biggest increase since April. That followed a sharp 5.8 percent drop in July.

Gasoline prices, which had been subdued through much of the summer, went up 8.7 percent. But a day after the attacks in New York and Washington, gas prices tumbled in many parts of the nation as government officials threatened action against price gougers and sought to reassure motorists of adequate supplies. graphic

- from staff and wire reports


Special report: Working to recover

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Experts uncertain how U.S. markets will react to tragedy - Sept. 14, 2001

U.S. economy relying on consumer spending in wake of attacks - Sept. 13, 2001

Economists believe Fed may cut rates when trade resumes - Sept. 13, 2001

Retailers stocks face volatility when markets re-open - Sept. 13, 2001

Gas prices remain stable - Sept. 13, 2001

Manufacturing shows uptick - Sept. 4, 2001

Handicapping the Fed's next move after 7th rate cut of 2001 - Aug. 22, 2001


Retail sales report

Industrial output report

Producer price index report

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