Consumer spending was strong in April

4% rise helps extend Wall Street rally into a second day

`Tremendous resilience'

Unabated appetite for new cars is factor

May 15, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

The laboring economy got a much needed boost last month as consumers went on a buying spree. The news sent stocks sharply higher for a second straight day.

Consumers spent $300.3 billion in the month on such things as automobiles, furniture, computers and sporting goods. That was 4 percent more than in April of last year and 1.2 percent more than in March, according to the Commerce Department, which released retail sales figures yesterday.

"The consumer has consistently outpaced expectations," said Michael R. Englund, chief market economist at Standard & Poor's in New York. "It shouldn't have been particularly surprising. The consumer has shown tremendous resilience over the last seven months."

Yesterday's report helped push stocks higher in a second day of big gains.

The market has been lackluster much of the year, but yesterday the Dow Jones industrial average, an index made up of 30 blue-chip stocks, rose 188.48 points, or 1.86 percent, to close at 10,298.14. Monday, it gained 169.74 points.

The Standard & Poor's 500 stock index, a broad measure of the market's performance, rose 22.72 points, or 2.11 percent, to 1,097.28, and the technology-heavy Nasdaq composite index soared 66.51 points, or 4.02 percent, to 1,719.05.

Shares of retailers shot up. Zale Corp.'s stock rose $3.15, or 7.7 percent, to $43.80; Wal-Mart Stores Inc.'s stock jumped $2.35, or 4.3 percent, to $57.39; and Home Depot Inc.'s stock was up $2.36, or 5.2 percent, to $47.98.

"Two days in a row, terrific," said Andrew M. Brooks, head of equity trading at T. Rowe Price Group Inc., the Baltimore mutual fund company. "Retail sales were good. I'm sure that number ... helps. What we have been lacking is a consistency of positive news."

Richard Cripps, chief market strategist at Legg Mason Inc., a Baltimore asset management and brokerage company, said the strong retail sales report "is an added confidence factor for the market."

"The consumer side of the economy is spending and is providing visibility [for investors] that corporate profits are going to grow," he said.

Consumer spending, which makes up two-thirds of the nation's economy, was pushed higher last month by several factors.

People still have an appetite for new cars, said Tun Wai, director of research and analysis at the National Association of Federal Credit Unions in Washington.

Sales have been strong because of low-interest financing, and some consumers are using home equity loans to buy new vehicles. Consumers spent $72.4 billion on new cars last month, 3.4 percent more than in April last year.

"There is a lot of home equity loans ... that are not at their maximum amount," Wai said. "There is still a lot of room involved where the consumer can spend a lot of money."

Larger tax refunds helped, too, and wealthier people benefited from reduced capital gains taxes, economists said.

"These combined put a lot of money in the consumers' pocket," said Englund, the Standard & Poor's economist.

Other factors that pushed spending higher included low interest rates and a mild winter that fueled housing construction, economists said.

"All of those things are now going to be working against us," said Mark Vitner, senior economist at Wachovia Securities Inc. in Charlotte, N.C. "We are going to be seeing less growth going forward. There is some pent-up demand there. That is what part of it is."

He expects consumer spending to grow 2.5 percent to 3 percent this year, well short of the 7.6 percent annual rate of the past three months, he said.

Some economists expect consumers to run out of gas, which would cause the already shaky economy to shrink even though the gross domestic product surged at an annual rate of 5.8 percent in the first three months of the year.

But those economists are in the minority.

Englund thinks the consumer has shown resilience in navigating a recession, a stock market collapse and the terrorist attacks of Sept. 11.

"If the consumer can survive what we have seen over the last year or two, we see little reason to expect a slowdown now," Englund said.

Because of the strong retail numbers, most economists don't expect the Federal Reserve Board to raise interest rates soon

Federal Reserve Chairman Alan Greenspan "can sit and wait," Wai said. "He doesn't have to put on the brakes immediately. It is not as if the economy is overheating."

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