Hopeful holiday signs for retailers

An unexpected rise in sales may boost the economy and raise production in spring.

In some ways, the nation's malls are a reflection of the national mood. When parking spaces are plentiful, it may mean clouds are hanging over the economy. When lots are full, it means Americans are doing what they do best: shopping.

Now, in a surprise to many economists, those asphalt lots are starting to fill up - just in time for the holiday season. The catalysts for the turnaround seem to be relief that the US is not at war with Iraq, a better tone to the stock market, and the perception that layoffs are slowing down. And those clever marketers are luring Americans with sales - big sales - on almost everything in the store.

Only six weeks ago, the forecast was far gloomier, with predictions that holiday sales would be a flop. But now, "It's not going to be a blockbuster year, but it's not a bust either," says Lynn Franco, director of the Conference Board's Consumer Research Center. On Monday, the Conference Board, a business research group, said its survey of consumers found holiday spending would increase a respectable 5 percent.

If consumers do indeed spend more, it has important ramifications for the economy into next spring. Manufacturers, who have been keeping close rein on their inventories, may have to boost production early next year to refill store shelves. A heavier order flow might in turn inspire business to pick up spending. This could help bolster the economic recovery.

The improvements are "not huge numbers, but it's going to be better than expected," says Fred Dickson, chief investment strategist at D.A. Davidson & Co., a retail brokerage company in Lake Oswego, Ore.

Yesterday produced several signs that the more optimistic outlook might come to pass. The Commerce Department reported that October consumer spending, especially on clothes and food, rose by a solid 0.4 percent, after falling 0.4 percent in September. It was the best gain since July, when spending rose 1.1 percent. At the same time, new claims for unemployment benefits dropped to a 21-month low.

Both numbers were better than expected. And economists say consumers should have plenty of cash this year because of mortgage refinancing, tax cuts, and modest job gains.

When consumers do hit the malls - especially today, known as Black Friday - they will find stores heavily promoting sales.

"All retailers are discounters right now," says Scott Krugman of the National Retail Federation.

The bargains in New York were enough to lure Diane Gibson and Debbie Cotesworth all the way from London. At Macy's, they found deals of 25 to 65 percent off. "We knew we couldn't afford the prices in London, and a friend told us it was cheaper to shop in New York. So we came," said Ms. Cotesworth, as she and her friend lugged boots, jeans, and jackets.

Even some very upscale stores are marking down clothes. That's the case at Peter Elliot on Madison Avenue, where a Kiton jacket is reduced from $2,800 to $1,400. "Feel the fabric," says Eileen Sorota, buyer for the store. "It's cashmere, and look at the hand-stitching."

In Miami, the real action is at Wal-Mart, where the lot is jampacked, the aisles congested, and the checkout lines lengthy.

"Wal-Mart always has the bargains," says Jennifer Roundtree after purchasing a Sony PlayStation 2 as well as a stack of video games for her teenage son. "Why should I go to the mall where they charge lots more for the same exact thing?"

Other Miami residents seem to have the same idea. At the nearby Aventura Mall, traffic on Tuesday afternoon was slower, despite store windows touting deep discounts. The majority of mall walkers seemed to be doing more window shopping than buying.

"I am ordering most of my gifts through catalogs," says Christina Perez. "I came to the mall to get a special watch for my husband, but the prices are too high here, even with all the sales."

However, at the upscale Americana Manhasset, a mall on New York's Long Island, the parking lot was nearly full with late-model Lexuses and BMWs on a Monday afternoon.

Kenny Grutman, a resident of Baldwin, N.Y., was off to buy some jewelry for his niece at the Tiffany & Co. store in the mall. He says that everywhere he's been, the stores and parking lots have been full. "The holidays are going to be gangbusters," he enthuses after describing a recent trip to the wholesale club Costco, where the aisles are gridlocked. "Look at the market. It's rockin'."

Indeed, the Dow Jones Industrial Average is up about 1,000 points since mid-September.

Mr. Dickson, the investment strategist, believes the consumer shift started about six weeks ago - just after the elections. "The negative political ads had gone off the air," he says. "People would tell me how bad things were, and I would ask them where they heard about it. They would tell me it was something they heard on the 6 o'clock news. It really had an impact."

• Jennifer LeClaire in Miami and Ashley Chapman in New York contributed to this report.