Retail Sales Set Record in October, Led by Car Sales

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Cheap financing for new cars fueled a 7.1 percent surge in U.S. retail sales in October, the biggest one-month gain ever recorded and a strong indication that Americans may be bouncing back from the shock of Sept. 11 attacks.

The overall October retail sales increase was nearly triple the 2.7 percent jump that Wall Street analysts had forecast and strongly implied that consumers were back in the shopping spirit, snapping up bargains on cars and clothing.

"Americans are recovering from their funk pretty darn quickly and it takes an awful lot to stop Americans from spending money,'' said economist David Wyss of Standard and Poor's in New York.

The jump in sales at the nation's retail stores came after consumers cut back on their spending in September, pushing sales down by 2.2 percent, the Commerce Department reported Wednesday.

Ex-Autos, Sales at 1.0 Percent

Much of the strength in the October retail sales report came from a record 26.4 percent increase in car sales, which have been boosted by zero-percent financing and other incentives.

To revive sagging sales, retailers have heavily discounted merchandise and offered other incentives. Car makers and dealers have provided free financing, which was a big factor in soaring car sales last month, economists say.

The 26.4 percent jump in car sales in October followed a 4.5 percent decline in September.

Excluding car sales, overall retail sales in October rose by 1 percent.

But the sales jump may cannibalize automakers' future sales, analysts say. Sales have not been matched with increases in production, and the Big Three have idled plants in October to reduce inventories. And GM has already said when it ends its zero-percent offers, it will launch a new round of more conventional "end of the year'' sales incentives, including cash rebates.

"When these incentives end it's going to be a big drop down,'' said Peter Glassman, economist at Bank One Corp., on Oct. 26 . "Consumers have been trained to look for the best deals, and that's why (automakers) haven't been able to get rid of them.''

Fed Cuts a Major Factor

Consumers, whose spending accounts for two-thirds of all economic activity, have been a main force keeping the economy out of recession. But economic fallout from the Sept. 11 terror attacks have probably made a recession this year unavoidable, economists say.

In an effort to prevent the economy from sinking deeper into recession, the Federal Reserve has cut interest rates 10 times this year, with three of the reductions coming after the attacks.

Congress, meanwhile, is working on a plan to stimulate the economy through new tax cuts and increased government spending.

The economy shrank at a 0.4 percent rate in the third quarter and many economists are predicting an even bigger drop in the current quarter, thus meeting a common definition of a recession: two consecutive quarters of declining economic output.

With unemployment rising and fears about anthrax in the mail and further terror attacks, economists worry that consumers might pull back, making the economy even weaker.

Sales at clothing stores increased by 6.9 percent, erasing a 5.9 percent drop in September.

At building and garden supply stores, sales rose by 2.8 percent in October, after falling by 2.6 percent. At health and beauty stores, sales went up by 1.7 percent, after a 0.3 percent rise.

Sales of sporting goods, books and music rose by 3 percent in October, following a 2.2 percent decline. Sales of electronics and appliances rose by 0.7 percent, after a 1.4 percent drop.

Bar and restaurant sales grew by 1.4 percent, a month after falling 2.5 percent.

Sales at furniture and home furnishing stores, however declined by 0.5 percent, after an even bigger 4.2 percent decrease. Sales at gasoline stations fell by 6.4, reflecting lower prices at the pump, following a 2.8 percent increase.

The 7.1 percent increase in total retail sales in October was the largest since the government began keeping retail sales records under the current classification system in 1992.

Last week, the nation's biggest retailers reported generally disappointing sales. But discounters and other value-oriented stores continued to be the beneficiaries of consumers' frugality.

Reuters and the Associated Press contributed to this report.