SPENDING CHILL HITS RETAILERS CONSUMERS CUTTING BACK AFTER Y2K SPENDING BINGE

By Susan Chandler Tribune Staff Writer February 12, 2000 Late last year, consumers were sweeping the shelves clean of bottled water and canned goods and stocking up on firewood, all because of fear that the Y2K computer bug would turn out the lights, stop deliveries and otherwise disrupt the economy.

Those with serious Y2K panic bought home generators to keep the power flowing. Even millions of people who didn't expect major trouble took out a few hundred dollars extra before New Year's Eve, just in case their credit cards or local ATMs might not function.

That Y2K economic binge boosted retail sales in December, as many economists predicted. But as new economic data released Friday reveals, Y2K mania also put a damper on sales in January as Americans pared down their stockpiles and took a breather from shopping.

The Commerce Department confirmed the January letdown with its monthly report on U.S. retail sales, which rose a modest 0.3 percent last month, to a seasonally adjusted $262.21 billion. The increase was well below the 0.6 percent that Wall Street analysts had expected.

Excluding a 2.3 percent surge in sales at auto dealers, retail sales fell by 0.3 percent in January, the first monthly drop in two years.

"January was really suffering from the post-Y2K blues," said Paul Kasriel, chief U.S. economist for Northern Trust Co. in Chicago.

"We saw large declines in food sales as well as drugstore sales. People stocked up on food and prescriptions ahead of Y2K. They're eating a lot of Spam now."

The January pullback in consumer demand came as no surprise to Matthew Heitz, owner of Chicago Firewood Corp. on Chicago's North Side.

Requests for firewood deliveries skyrocketed 100 percent in late December, outrunning Heitz's supply of seasoned hardwood. Firewood prices soared 40 percent during a 10-day period, thanks to Y2K demand.

"We were actually only able to fill 25 percent of the orders," Heitz said.

But after New Year's Day came and went with no catastrophes, firewood demand plummeted in January, which is usually a busy month. Prices have since returned to normal levels.

"Everybody had stocked up. We just didn't think Y2K would have that big an effect," Heitz said.

At a macro level, the slim increase in January retail sales isn't worrying anyone.

The U.S. economy has been so hot that the Federal Reserve has increased interest rates four times since June to try to slow things down. Consumer spending makes up two-thirds of the U.S. economy, which makes it a favorite target for Fed policymakers trying to keep inflation under control.

Despite the January slowdown, it's almost a virtual certainty that the Fed will raise rates later in the year, economists said.

Among the numbers they will look at are the upward revisions in November and December retail sales numbers as well as the increase in fourth-quarter U.S. gross domestic product.

Fourth-quarter GDP growth is likely to be upwardly revised to around a 6 percent annual rate, from 5.8 percent, Kasriel said. That's more than enough economic vitality to keep the Fed on inflation alert, he added.

The Commerce Department said sales of durable goods--expensive items expected to last three years or more--rose by 1.4 percent in January, matching the revised December increase.

Sales of non-durable goods such as food and clothing fell 0.5 percent in January after rising by 3.2 percent in December. But sales at general merchandise stores were up 0.8 percent after a 1.1 percent gain in December, indicating consumers went bargain-hunting after the holidays.

Some economists expected more growth in January. Their theory was that extra Y2K contingency cash withdrawn in late December would be spent on splurges early in 2000. That doesn't appear to be the case, Northern's Kasriel said, noting that Friday's retail sales numbers are still preliminary.

But Carl Steidtmann, chief retail economist for PricewaterhouseCoopers, believes January lived up to expectations, especially considering the severe weather in many parts of the country.

Even though many retailers had lean inventories after the holiday season, "Consumers were basically clearing the shelves," Steidtmann said.

He expects the strong consumer spending pattern to continue into February and March.

"There's still a lot of momentum left, and there's probably some pent-up demand because of the bad weather

http://chicagotribune.com/business/businessnews/article/0,2669,SAV-0002120198,FF.html

-- Martin Thompson (mthom1927@aol.com), February 12, 2000

Answers

this is certainly true in my house. i have only been grocery shopping twice since the middle of december. $20 and $49. its great. also i bought clothes, personal items, etc. to last for at least six more months, so i don't imagine we will make many trips to the store for anything. i will, however, restock once my supplies reach a designated level and stay stocked for the future.

-- tt (cuddluppy@aol.com), February 13, 2000.