Spending rebounding, but at a price

By SHIHOKO GOTO, UPI Senior Business Correspondent  |  Jan. 4, 2002 at 1:49 PM
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WASHINGTON, Jan. 4 (UPI) -- The Coach outlet store in Hagerstown, Md., an hour's drive northwest of Washington, was packed late Saturday evening. Prices at the high-end bag maker were slashed after Dec. 25, and the race was on to buy leather accessories at deep discounts.

With bags, wallets, and jackets sometimes at 70 percent of their original price, customers were prepared to wait nearly 15 minutes to buy themselves holiday gifts.

And by the look of things, that seemed to be a national trend, not limited to the fashion-conscious readers of the ubiquitous Vogue and Elle magazines.

New York-based UBS Warburg Securities and the Bank of Tokyo-Mitsubishi concluded in their joint report this week that U.S. chain store sales have recovered to pre-Sept. 11 levels in the latest week surveyed ended Dec. 29. The brokerages' index rose 0.9 percent from the previous week to 397.5, above the 396.6 reached the week prior to the terrorist attacks.

Their finding confirms that while the U.S. economy still remains in the doldrums, people are prepared to hunt down bargains. Indeed, the lure of zero-percent financing deals offered by most car manufacturers since the terrorist attacks on New York and Washington brought home the fact that while consumers are worried about job prospects and a lingering recession, they nonetheless want to take up a good deal when they see one, especially when told that the offer would be available for a limited time.

In fact, car buyers snapped up 1.73 million new cars in October alone, more than any month in history, drawn by the interest-free purchasing deals.

Meanwhile, markdowns even before Christmas day boosted sales at a large number of stores nationwide. Wal-Mart Stores Inc., the world's largest retailer, said at the end of December it expects sales from the holiday season to rise between 4 and 6 percent compared to the same period the previous year. Department store JC Penney Company Inc. reported that its post-Christmas sales rose nearly 5 percent from a year ago

But while such hefty discounts are attractive for consumers, they squeeze the profit margins of carmakers and other manufacturers who have already been hard hit by the economic slump prior to the terrorist strikes.

Indeed, the economy had been on a slippery slope since the end of 2000, forcing the Federal Reserve to slash interest rates from the beginning of last year. The National Bureau of Economic Research- the country's official arbiter of booms and busts- proclaimed that the decade of growth came to an end last March, as the economy entered a recession. Particularly hard hit by the slump prior to Sept. 11 were manufacturers, which were seen to be at lingering at recessionary levels by last summer.

Admittedly, the deep discounts helped reduce inventories clogging up many companies, especially for high-tech producers as well as auto manufacturers. But they could pay a high price for their stronger sales performance at the year-end, as consumers hesitate from spending once bargains are lifted.

Meanwhile, the nation's unemployment rate continues to climb, as the jobless rate hit 5.8 percent in December, according to the Department of Labor Friday. A tough job market is likely to dampen consumer sentiment, which in turn could put the brakes on spending.

But many economists argue that the employment situation is actually improving, as non-farm payrolls decreased by 124,000 compared to 448,000 and 371,000 in October and November respectively.

That signals "an improving labor market picture," said Banc of America Securities economist Peter Kretzmer, adding that the worst could be over for the domestic economy, even though it is not out of the woods yet. Meanwhile, the stock market has actually recovered above pre-Sept. 11 levels, which is another source of comfort for investors and consumers alike.

The U.S. Department of Commerce will be releasing its December retail sales data early Jan. 15. In November, overall sales had fallen 3.7 percent from the previous month, although they declined only 0.5 percent excluding autos.

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