By Jeannine Aversa
WASHINGTON – Consumers, drawn by favorable financing and heavy discounting, boosted retail sales in October by 7.1 percent, the biggest one-month gain ever recorded.
The jump in sales at the nation’s retail stores came after consumers cut back on their spending in September, pushing sales down by 2.2 percent, the Commerce Department reported Wednesday.
Much of the strength in the October retail sales report came from a record 26.4 percent increase in car sales, which have been boosted by zero-percent financing and other incentives.
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 terror attacks have probably made a recession this year unavoidable, economists say.
In an effort to prevent the economy from sinking deeper into recession, the Federal Reserve has cut interest rates 10 times this year, with three of the reductions coming after the attacks.
Congress, meanwhile, is working on a plan to stimulate the economy through new tax cuts and increased government spending.
The economy shrank at a 0.4 percent rate in the third quarter and many economists are predicting an even bigger drop in the current quarter, thus meeting a common definition of a recession: two consecutive quarters of declining economic output.
With unemployment rising and fears about anthrax in the mail and further terror attacks, economists worry that consumers might pull back, making the economy even weaker.
Still, economists are hopeful that the Fed’s aggressive rate cuts along with the economic stimulus being contemplated by Congress will lead to a rebound next year.
On Wall Street, the strong retail sales report lifted stocks. The Dow Jones industrial average gained 33 points in the first hour of trading as the report boosted hopes for an economic turnaround in 2002.
To revive sagging sales, retailers have heavily discounted merchandise and offered other incentives. Car makers and dealers have provided free financing, which was a big factor in soaring car sales last month, economists say.
The 26.4 percent jump in car sales in October followed a 4.5 percent decline in September.
Excluding car sales, overall retail sales in October rose by 1 percent.
Sales at clothing stores increased by 6.9 percent, erasing a 5.9 percent drop in September.
At building and garden supply stores, sales rose by 2.8 percent in October, after falling by 2.6 percent. At health and beauty stores, sales went up by 1.7 percent, after a 0.3 percent rise.
Sales of sporting goods, books and music rose by 3 percent in October, following a 2.2 percent decline. Sales of electronics and appliances rose by 0.7 percent, after a 1.4 percent drop.
Bar and restaurant sales grew by 1.4 percent, a month after falling 2.5 percent.
Sales at furniture and home furnishing stores, however declined by 0.5 percent, after an even bigger 4.2 percent decrease. Sales at gasoline stations fell by 6.4, reflecting lower prices at the pump, following a 2.8 percent increase.
The 7.1 percent increase in total retail sales in October was the largest since the government began keeping retail sales records under the current classification system in 1992.
Last week, the nation’s biggest retailers reported generally disappointing sales. But discounters and other value-oriented stores continued to be the beneficiaries of consumers’ frugality.
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