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Consumers Open Purses - Slightly

LIKE late-spring flowers, signs of consumer spending are slowly - very slowly - starting to appear. Some chilling economic news, such as a large jump in unemployment, could throw a frost on that development. Otherwise, many sectors will enjoy the flowers - for example, manufacturing companies, retailers, and long-distance haulers such as truckers and railroads.

Despite the recession, several retail outlets, such as Nordstrom of Seattle, and Charivari Ltd. and Labels for Less, both regional stores here, are opening new outlets. They are counting on consumers returning in in greater numbers.

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``March was a dreadful month in terms of consumer sales,'' says David Wyss, an economist with DRI/McGraw-Hill, an economics consulting firm in Lexington, Mass. ``But we're starting to get slightly more upbeat reports on department store sales. Overall, consumer spending remains weak; but there are modest signs of a rise.'' Consumer spending is important, since it amounts to two-thirds of the nation's gross national product.

Overall consumer borrowing for installment purchases, of such items as cars and furniture, fell in March for the fourth straight month in a row. But credit-card debt rose 2.1 percent, to $225 billion. This contrast may be due to consumers putting more purchases on their credit cards while not taking on as much new debt. A number of retail chains posting less than happy sales for April. But others are reporting fair to good results. Dayton Hudson's sales were up 11.8 percent in April.

Auto sales continue to be grim. But the adverse car numbers mask overall improvements in consumer spending, says Stephen Gallagher, an economist with Kidder, Peabody & Co. ``We're definitely seeing some signs of a pickup in spending,'' he says. The housing market, he says, ``clearly bottomed'' in the first quarter, with new home sales posting a turnaround in February and March. And there is ``new strength in the used car market.'' In particular, car rental companies are selling off their large fleets of almost brand-new products.

``Consumers are somewhat more optimistic about the future,'' says Richard Curtin, an official at the Survey Research Center of the University of Michigan. ``The gains in spending, however, will be very slow in coming,'' reflecting concerns about income and employment prospects. Mr. Curtin adds that many state and local governments are looking for tax increases, which work against consumer outlays, especially for big-ticket purchases.

Factors that should help households open their wallets - such as recent reductions in interest rates - haven't had an impact yet. While rates declined in March and April, they were still higher than they were a year ago for new cars, Curtin says.

Moreover, economists note, disposable personal income, adjusted for inflation, has fallen 1.3 percent over the past year.

So what you have, says Curtin, is at the least a ``beginning'' in increased consumer confidence, and thus, new spending.

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For hard-pressed retailers, even a modest improvement in spending will have a positive impact. Bruce Missett, a retail analyst with Morgan Stanley & Co., says many retailers that sell somewhat ``smaller-ticket items'' should benefit from market-share growth in the period ahead. Valuations for many retail stocks, he argues in a recent study, are ``below their historical averages.'' Companies that he likes include Dillard Department Stores, Circuit City, Dayton Hudson, Gap Inc., Limited Stores, Toys R Us, and F. W. Woolworth.

``Many of my retailers are telling me that they have been seeing improvement in sales since the Gulf war ended, but that they wouldn't necessarily write home about it,'' says David Williamson, an analyst with Advest Inc. in Hartford, Conn. ``Retail stocks have risen since the start of the year on expectations of a better economy. If the economy doesn't improve, some of those stocks could be vulnerable'' to price drops. Companies that Mr. Williamson likes include Limited, Giant Foods in Washington D.C., Albertson's on the West Coast, Tiffany & Co., and TJX.

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