Gloom begins to lift from post-Sept.11 economy

Jean-Louis Santini, Agence France-Presse, Washington

The gloom appears to be lifting from the U.S. economy as it shakes off the effects of the Sept.11 terrorist strikes, encouraged by progress in the U.S.-led military campaign in Afghanistan.

Wall Street is showing signs of bouncing back, with the Dow Jones industrials rising nearly 3 percent this week and surpassing pre-Sept.11 levels, while investors are banking on a rise in firms' profits five or six months down the road.

In addition to a series of successes in the military campaign in Afghanistan and a 10-day period devoid of anthrax-laced-letter scares, several favorable economic indicators have helped boost the confidence of consumers and businesses alike.

The Commerce Department on Wednesday announced a 7.1 percent jump in retail sales in October, aided by the zero-percent financing plans offered by automakers to help fuel sluggish sales and move their inventory before the end of the year.

But even without taking automobiles into account, sales have increased 1.8 percent, practically erasing the 1.9 percent drop registered in September.

"Yesterday's report suggested that retailers are offering discounts and other deals that consumers can't refuse," said economist Ian Shepherdson of High Frequency Economics.

"Those who have a job are enjoying (tax) rebates, refinancing, lower interest rates and rising real wages, so spending is going to increase," he added.

Ken Goldstein, a Conference Board economist, noted that Americans "are starting to get over, to some degree, what happened in September."

"Certainly, the pessimism is not turning into a national depression of the spirit," he said.

But the economy must show continued progress in order for Americans to maintain this positive outlook, and that is a tall order, since relatively high unemployment rates continue to put a damper on spending.

The White House and many forecasters are counting on a solid comeback in 2002, encouraged by a series of interest rate cuts by the Federal Reserve and an economic stimulus plan being debated in Congress.

Weak inflation -- the government announced Friday a 0.3 percent drop in consumer prices in October -- gives the Fed extra latitude to relax its monetary policy without the risk of overheating once the economy picks up again, according to Merrill Lynch economist Gerald Cohen.

But the drop in prices, coupled with a drop in energy costs, does not signal a lasting deflationary tendency in the economy, he cautioned, predicting a 1.5 percent hike in prices in 2002.

Cohen stressed that the sharp drop in gas prices would help stimulate spending.