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Sat, Dec 25, 2004 - Page 12 News List

US consumer spending slows

DISAPPOINTING The slowdown appeared to confirm a tepid performance by retailers, although analysts said a boost in consumer confidence could yet save Christmas sales


US consumer spending growth -- the heart of the economy -- slowed unexpectedly last month, but analysts said on Thursday that a boost in consumer confidence could yet save crucial Christmas sales.

Expenditures advanced by a seasonally adjusted 0.2 percent last month, disappointing many Wall Street analysts who had predicted a gain of 0.3 percent.

Spending had advanced 0.8 percent the previous month.

Consumer spending is pivotal because it drives two-thirds of US economic activity.

People's incomes climbed 0.3 percent, a little better than many Wall Street forecasts. Disposable incomes -- or incomes after tax -- rose by the same 0.3 percent margin.

After accounting for inflation, consumer spending was flat and disposable income climbed 0.2 percent.

"While this could be considered cause for concern, I look for a big rebound in December," said Steve Stanley, economist at RBS Green-wich Capital Markets.

"Auto sales likely posted a rally in December for the third straight year, holiday sales should turn out to be decent if not spectacular, and prices, led by energy, almost certainly are falling," he said.

A breakdown of the consumer spending figures showed expenditure on durable goods, such as cars, slumped 2.4 percent. Purchases of other goods rose 0.4 percent. Spending on services climbed 0.6 percent.

"November's spending gain, in combination with the strong increase in October, sets us up for a solid holiday sales showing," said Wachovia economist Gina Martin.

For retailers, the November-December period is crucial.

The slowdown in consumer spending appeared to confirm a tepid performance by retailers, who reported a 0.1-percent gain in sales last month.

"The picture is clouded so far by individual retailers and same store sales that have failed to meet expectations but in the aggregate sales are on pace to record a holiday season at least equivalent to last year," Martin said.

In an encouraging sign, US consumer sentiment showed a stronger-than-expected improvement this month, a survey by the University of Michigan showed.

The university's survey-based consumer sentiment index rose to 97.1 this month from 92.8 last month. It was also up from an early-December reading of 95.7.

Major US retail chains reported a pre-Christmas spending rush, improving holiday sales prospects.

Sales jumped 1.6 percent in the week ending Dec. 18, adding to a rise of 1.2 percent the previous week, according to a survey by the International Council of Shopping Centers (ICSC) and UBS Warburg.

Compared with a year ago, sales were up 3.5 percent.

"With just a few days left before Christmas, consumers continued to pick up their holiday shopping and gave retailers another week of positive sales," ICSC chief economist Michael Niemira said.

"As of Dec. 19, only 31 percent of consumers had totally completed their gift shopping, which means that some 70 percent still have a little shopping left before Christmas," he added.

"Consumers have stated that they have been shopping even later this holiday season than last year, which provides some evidence that this season will have a late-last minute surge," Niemira said.

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