Automobile Sales Boost December Retail Sales

WASHINGTON January 14, 2003; Jeannine Aversa writing for the AP reported that brisk sales of automobiles offset lackluster holiday business for other merchants and gave a boost to retail sales in December, the Commerce Department reported Tuesday.

Retail sales went up 1.2 percent from November, which had a 0.9 percent gain. But all of December's gain reflected a burst in automobile sales, which jumped 5 percent, the biggest increase in more than a year.

While free-financing deals and other generous incentives motivated car buyers who flocked to automobile showrooms in December, shoppers were more choosy when it came to making other purchases during the holiday season.

Excluding sales at automobile dealerships, sales at other retail outlets were flat in December, compared with a modest 0.3 percent gain in November.

"While consumers were haggling with auto dealers, they weren't shopping for other things," said economist Ken Mayland, president of ClearView Economics.

Consumer spending accounts for two-thirds of all economic activity in the United States. It has been the main force keeping the economy going.

For all of 2002, retail sales rose by 3.4 percent, down from a 3.7 percent gain in 2001.

In December, the economy lost a whopping 101,000 jobs, leaving the unemployment rate stuck at an eight-year high of 6 percent. The stagnant job market and economic uncertainties could make consumers more cautious, which would place an even greater burden on the struggling economy, economists said.

"Spending is erratic," said Lynn Reaser, chief economist at Banc of America Capital Management. "Consumers will need to see gains in employment and income to support sizable gains in spending."

Still, economists are hopeful consumers will keep their pocketbooks and wallets open wide enough in the coming months to prevent the economy from sliding into a new recession. They believe the Federal Reserve Board will hold interest rates at currently low levels at its next meeting at the end of this month.

To help the sluggish economy, President Bush last week offered a 10-year, $674 billion stimulus package. It includes speeding up tax rate reductions and increases in the child tax credit, eliminating taxes on stock dividends and accelerating deductions planned for business equipment. Democrats have a competing plan.

"The plans I laid out recognize that the money we spend here isn't the government's money, it's the people's money, and the more money the people have in their pocket, the more likely this economy is going to grow," Bush said Tuesday. "It's a good idea. I hope Congress acts as quickly as possible."

Although the economy has been recovering from the 2001 recession, its progress has been slow and uneven, with a quarter of economic growth followed by a quarter of weakness.

That climate, along with fears about a possible war with Iraq and concerns about tensions with North Korea, are making companies wary of big commitments in capital investment and hiring, the main factors restraining the recovery.

Last week, the nation's biggest retailers reported disappointing sales in December, making for the weakest holiday season in decades. Merchants suffered amid economic uncertainty, a short holiday shopping season and a lack of must-have items.

The government's report on retail sales is much broader and covers sales at automobile dealers, gasoline stations and bars and restaurants.

According to the figures released Tuesday, the 5 percent rise in auto sales in December followed a 2.6 percent increase in November.

"The reinstatement of more generous incentives such as zero-percent financing, strong cash incentives and in some cases delayed payments and no downpayments on 2003 models were irresistible to customers," said Paul Taylor, chief economist at the National Automobile Dealers Association.

Elsewhere, shoppers were selective.

Sales at electronics and appliances stores rose 0.6 percent in December, up from a tiny 0.1 percent increase in November. Sales at clothing stores went up 0.8 percent, wiping out a 0.8 percent drop in November. At gasoline stations, sales rose 0.7 percent, following a 0.9 percent increase.

Bar and restaurant business rose 1.1 percent in December for the second straight month, but at furniture and home furnishing stores, sales were flat after posting a sizable 1.6 percent rise in November.

Sales of building and garden supplies fell 1.8 percent last month, following a 0.8 percent rise. Sporting goods, book, music and hobby stores dropped 0.9 percent in December, a turnaround from November's 0.5 percent increase. Sales at food and beverage stores declined by 1 percent, erasing a 1 percent rise in November.

And, sales at department stores dipped 0.3 percent in December,after a steeper 3.4 percent drop.