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Tue, Nov 27, 2001 - Page 21 News List

US economy appears to be on the mend

PROGNOSIS Consumers are expected to be much more cautious than usual this holiday season as they avoid high-ticket items while favoring bargains


Shoppers rush to grab US$85 television sets inside Wal-Mart in Upland, California just after the store opened Friday. Hoping to get consumers back in the buying mood, merchants in the US began offering the most dramatic holiday discounts in recent years.


The US economy's Sept. 11 wounds are healing but analysts say the country is still in a recession that will linger until at least early next year.

More than two months after the attacks on the World Trade Center and the Pentagon, consumers have resumed many of their normal habits, hitting malls and car showrooms and eating at their favorite restaurants.

But economists say that even as Americans start to feel a little safer and happier amid progress in the war in Afghanistan, they will still handle their money a bit more carefully. That restraint is expected to last throughout the holiday season and into the first part of next year.

"This Christmas is going to be tough, even with all the sales that are going on," said Mark Zandi, chief economist at Economy.com in West Chester, Pennsylvania.

It was the initial trauma of the attacks that kept consumers holed up at home in front of their television sets, but their reticence about spending now stems from a different source: fear that they could lose their jobs.

"The trend on consumer spending is probably still a downward one," Bruce Steinberg, chief economist at Merrill Lynch in New York, said. "The key to what the consumer does is still the job market and companies are continuing to lay people off."

Layoff announcements flooded in during the first few weeks after Sept. 11. They have slowed to a trickle lately but Steinberg said with corporate profits likely to plumb post-World War Two lows in the fourth quarter, the job cuts are far from over.

Equally damaging to hopes for a buoyant holiday season is the fact that few companies are hiring. Many economists expect the US unemployment rate -- which jumped a half-point to 5.4 percent in October -- to reach 6 percent in coming months.

Still, analysts are heartened that the economy is proving more resilient than expected.

"Things aren't good but they clearly aren't terrible," said Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania.

Naroff said a turning point in his view of the economy came when he drove by the local McDonald's and saw that the restaurant had put back up its "Now Hiring" sign.

"Those signs had disappeared for a while," he said.

Wall Street is finding reasons to be encouraged as well, most notably last week's report from the Commerce Department showing a 7.1 percent snapback in October retail sales after they sank 2.2 percent in September.

The October jump was the biggest on record but economists cautioned it was fueled by auto sales, which were in turn juiced up by huge incentive offers from car companies.

Because the incentives lured in customers who might have planned to wait to buy a car sometime next year, the surge bodes for weaker sales in coming months.

Steinberg of Merrill Lynch said investors should be careful not to pin hopes of an imminent recovery on the retail sales data or some better-than-expected jobless claims reports that have come out lately.

"We are not ready to recover tomorrow," Steinberg said.

"It's not going to be the worst recession we ever had but it's not over yet."

Ironically, the optimism that the US economy may be poised to pull out of a recession has come before the downturn has even met the loose definition of a recession -- two straight quarters of falling gross domestic product.

A committee that determines the official dates of recessions in the US was holding a conference call yesterday to decide whether the world's largest economy has slid into one, Martin Feldstein, the president of the National Bureau of Economic Research, said.

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