Drop in consumer spending largest in 10 years

Associated Press

WASHINGTON — Consumers, stunned by the terrorist attacks, stayed away from stores in September and sent retail sales down by the largest percentage in nearly 10 years of record-keeping.

The Commerce Department reported Friday that sales at the nation’s retailers plunged by 2.4 percent last month, after posting a 0.4 percent rise in August. There were cutbacks for a wide range of products, from cars to clothing.

Consumers, whose spending accounts for two-thirds of all economic activity, have been a main force keeping the economy out of recession. But economic fallout from the Sept. 11 attacks on the World Trade Center and the Pentagon have probably made a recession this year unavoidable, many economists said.

Stuart Hoffman, chief economist at PNC Financial Services Group, believes the country is currently in a full-blown downturn.

"We were flirting with one before the attacks, and obviously the blow they have dealt to personal security and financial security was what pushed us over into recession," he said.

The drop in September retail sales was the largest since the government began keeping comparable sales records at the beginning of 1992.

"The decline is a recession-type number," said First Union economist Mark Vitner. "September’s drop was so large that some additional declines in inventories, factory orders and employment are virtually assured."

While consumer spending stalled after the attacks, it has since rebounded, spurred in part by zero-interest financing for cars and heavy discounting for other products.

But analysts said the outlook for spending in the months ahead is dicey. Consumers could pull back sharply if there is another terrorist attack on U.S. soil and if companies keep slashing jobs, economists said.

Some economists took encouragement from reports that the University of Michigan’s survey of consumer confidence showed a rebound in mid-October with a reading of 83.4, up from 81.8 in late September.

The economy grew at an anemic 0.3 percent rate in the second quarter, but analysts believe that will be the last quarter of growth this year. Many believe the economy, as measured by the gross domestic product, will have shrunk in the third and fourth quarters. A recession is commonly defined as two quarters of contracting GDP.