Another Interest Rate Cut(?)

Slipping consumer confidence in the economy, which many blamed for retail's desultory Christmas 2000 results, is expected to slip even more in the next six months. According to Conference Board surveys, Americans'expectations for the next six months dropped to the lowest point since 1993. Just eight months ago, in May 2000, the Conference Board survey rated those expectations at an all-time high. Among the factors blamed for the crisis in confidence are the slipping stock market and a wave of announced layoffs by major employers. Yesterday, Amazon.com said it would trim 1300 jobs – 15 percent of its workforce – after a $545 million loss in the fourth quarter of last year.

Even the Federal Reserve's interest rate cut of a half-point earlier this month hasn't seemed to turn consumer activity around. The Fed is in the midst of a two-day meeting, and there is an expectation of a further rate-cut. Fed chairman Alan Greenspan told Congress last week that the economy has slowed to a crawl and could fall into a recession this year if consumers are so worried that they sharply curtail their spending.

Consumer spending has inched up tentatively this month. Most large retail chains reported selling more goods in January 2001 than a year ago. Nonetheless, a number of large retail organizations – including Sears, J.C. Penney, Office Depot, OfficeMax, Nordstrom, Warner Bros. Studio Stores, Gateway Computers, Service Merchandise, Paul Harris and, yesterday, Saks Inc. – have announced plans to close stores, slow down expansion plans, cut costs and trim workforce. Montgomery Wards and Bradlees declared bankruptcy and went out of business. And the e-retail community, which was expected a year ago to drive consumer spending to new, dizzying heights, has seen the bottom fall out.