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Thu, Dec 26, 2002 - Page 12 News List

US economy ends year on a bad note

UNCERTAIN FUTURE Data on holiday shopping indicate that this holiday season's sales will be the weakest on record as US consumers tighten their belts in expectation of a war


Disappointing data on holiday shopping and an unexpected drop in orders for costly manufactured goods, seen in reports released on Tuesday, showed the US economy sputtering as the year drew to a close.

Orders for durable goods -- items intended to last three or more years -- slid 1.4 percent in November, the Commerce Department said, a decline economists pinned to an uncertain business environment as the country readied for war.

The report, which poured cold water on hopes a long slump in business spending was beginning to ease, was much weaker than expected on Wall Street, where analysts had looked for a 0.7 percent rise. In addition, October was revised downward to a 1.7 percent gain from a earlier reported 2.4 percent rise.

"These numbers are weak across the board," said Drew Matus, senior financial economist at Lehman Brothers. "Usually you can find something upbeat in these figures but this time there's no good news at all."

Two other dour Christmas eve reports showed sluggish holiday sales, further underscoring the economy's weakness.

In one report, the Bank of Toyko-Mitsubishi and UBS Warburg forecast holiday sales in November and December would be up an anemic 1.5 percent over last year, the smallest gain since the banks began tracking weekly sales in 1970.

Their report showed chain store sales rose just 0.1 percent in the week ended Dec. 21 -- the Saturday before Christmas and the busiest shopping day of the year -- from the prior week.

A separate report from Instinet Research showed sales at major US chain stores inched up 0.2 percent in the three weeks ended Dec. 21, compared with the same period last month.

"The bottom line is, the [holiday sales] performance is likely to be the weakest on record," said Michael Niemira, retail analyst with Bank of Tokyo-Mitsubishi.

The batch of data soured the mood of investors. The Dow Jones industrial average closed down 45 points at 8448 and the tech-heavy NASDAQ Composite slid 9 points to 1372. At the same time, Treasury prices climbed on the view the Federal Reserve would hold interest rates lower longer to help the economy.

Citing a need to aid the economy and combat terrorism, the Bush administration on Tuesday asked Congress to raise the government's debt limit from the current US$6.4 trillion. The US budget deteriorated when the economy fell into recession last year, resulting in the first deficit after four years of surpluses.

The Commerce Department said orders for capital goods excluding defense and aircraft, which is viewed as a proxy for business spending plans, fell 2.2 percent.

Economists said the uncertainties surrounding the possible economic impact of a potential US war with Iraq has made businesses reluctant to increase their spending.

"There is an underlying need for capital investment but in this atmosphere of uncertainty companies don't mind falling behind a little bit and just waiting till things clear up," RBS Greenwich Capital Markets economist Stephen Stanley said.

Fed officials have expressed hope that once the fog of war -- or possible war -- lifts, the economy would rise as well.

"Any significant fall in the current geopolitical and other risks should noticeably improve capital outlays, the indispensable spur to a path of increased economic growth," Fed Chairman Alan Greenspan said last week.

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