Shoppers Hit Stores, Boost Sales Mild Weather Contributes To Good Month For Retailers

Consumers shrugged off their winter doldrums to spend with abandon in January and February as warm weather and falling interest rates gave the economy a solid push to start the year.

But foreign trade, the economy’s one weak spot, continued to worsen with the 1997 deficit in goods, services and investment posting the second-worst imbalance in history.

Retail sales rose 0.5 percent in February, propelled by El Nino’s gift of unseasonably warm weather in much of the country that brought shoppers out early to buy spring clothes and garden supplies.

In a second report Thursday, the Commerce Department said America’s deficit in the broadest measure of foreign trade - the current account - widened by 12.3 percent to $166.4 billion in 1997 as the flow of U.S. investment earnings turned negative for the first time since at least the end of World War II.

The two reports dramatically underscored the powerful but opposite forces influencing the economy - a robust domestic sector that has greater spending power stemming from the lowest unemployment levels in a generation, and a huge and growing trade deficit.

Economists are forecasting that the Asian financial crisis, by causing the deficit to balloon even further, will significantly slow the U.S. economy this year.

However, there has been little evidence of that slowdown so far. In fact, the initial effects of the Asian crisis have proved to be a boon for the economy, pushing interest rates lower as investors sought safe havens in the United States for their money.

That drop in rates spurred a new wave of mortgage refinancings that left consumers with more spending power and boosted home sales dramatically. Average 30-year mortgage rates dipped this week to 7.16 percent although they are still slightly above their January low of 6.94 percent, according a Freddie Mac mortgage lender survey.

The retail sales report not only showed a 0.5 percent rise in sales in February but sharply revised upward January sales to 1 percent, a 10-fold increase from the original estimate and the biggest gain in six months. Retailers had been disappointed by weaker-than-expected demand during the holiday shopping season.

“Consumers are not only feeling very good about the economy and their financial system, but they are acting on their confidence and spending generously,” said Rosalind Wells, chief economist of the National Retail Federation.

The strength in February came from robust increases of 1.3 percent in sales at department stores and 2 percent at hardware and garden supply centers. Auto sales were up only 0.1 percent and furniture sales actually fell 0.4 percent.

On trade, the government said the $166.4 billion deficit in the current account last year was the worst showing since a record $168.1 billion in 1987.

Many economists believe the 1998 current account deficit could easily soar by $100 billion as U.S. exports to Asia are hurt by the economic turmoil while Asian imports grab a bigger share of the American market.

Signs of the worsening trends were evident in the October-December quarter when the current account deficit widened to $45.6 billion, a quarterly record.

For the year, the current account category that tracks investment earnings dipped into negative territory by $14.3 billion as foreigners earned more on their U.S. investments than Americans earned abroad.