Economic reports raise hopes for global recovery

WASHINGTON (AP) - Just in time for Christmas, the fragile economic recovery is showing signs of strengthening: Consumers are spending, companies are rebuilding stockpiles and Chinese exports are mounting a comeback.

Data released Friday eased some worries about Americans' willingness to spend this holiday season. But stores remain worried that they may have to offer deeper discounts than planned, perhaps as early as this weekend, because of mediocre sales so far.

Most stores have reported lackluster results for the start of the holiday season, so the Commerce Department's retail-sales report for November was encouraging. Sales rose 1.3 percent - the healthiest advance since August and more than double the increase economists had expected.

Most economists have been concerned that high unemployment could depress spending and drag down an economy struggling to emerge from the worst recession since the 1930s.

"The labor market is showing signs of stabilization, and this is giving consumers greater confidence to spend a little more than they were earlier this year," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York.

But other analysts cautioned that the economy still faces so many obstacles that consumer spending and the recovery are likely to be sluggish in the months ahead.

Also sparking optimism was a report Friday that U.S. businesses unexpectedly increased their inventories in October, halting a slide of 13 consecutive declines. The small gain raised hopes that businesses will restock their depleted shelves, boost factory production and help bolster the recovery.

Businesses boosted inventories 0.2 percent in October, better than the 0.3 percent drop economists had expected. Total business sales rose 1.1 percent, the fifth straight gain.

Signs of improvement were not limited to the American economy.

China's trade figures for November were the best in a year, with exports falling just 1.2 percent from the same month of 2008. Retail sales, factory output and investment also saw robust growth last month.

"High unemployment, poor income growth, tight credit and the need to pay down debt mean that consumption growth is likely to slow," said Paul Dales, an economist at Capital Economics.

Shoppers crowded malls for deep discounts over Thanksgiving weekend, but many consumers have been slow to return. Some analysts say the industry could suffer its second straight year of holiday-season sales declines.

The two weeks since Thanksgiving have been especially tepid. According to ShopperTrak, a research firm that tracks sales and traffic, sales slipped 0.3 percent for the week that ended Dec. 5 compared with the year-ago period. And they plummeted 18 percent compared with the previous week.

Officials at ShopperTrak estimated Friday that business did not improve much this week.

The disappointing business comes as stores, from Toys R Us to J.C. Penney, have been expanding hours and offering discounts to attract shoppers during the traditional lull after Thanksgiving. But most stores have stopped short of drastic price slashing.

Many are counting on a strong sales rebound this weekend. If that does not happen, they may have to cut prices further.

"It's been slow for sure," said Bryan Eshelman, managing director of the retail practice of AlixPartners. During the Thanksgiving weekend "people took advantage of promotions and now are waiting for similar levels of discounting."

With tight credit and high unemployment, "there is just a reset in the mindset of what people are willing to spend," he said.

C. Britt Beemer, chairman of America's Research Group, a market research firm, said shoppers are now looking for 60 to 70 percent off across all merchandise. "Giving customers 50 percent off is nothing," he said.

One shopper, Jared Wadley, 42, from Ypsilanti Township, Mich., said he's delaying some holiday buying until the final days before Christmas.

"I don't want to buy everything now and find out a week or two later that I could have gotten a better deal," he said.

Economists consider the Commerce Department figures a more inclusive figure than the stores' data. The government figures cover a broader category of spending, from home furnishings to electronics to gasoline station sales.

They also include online sales and results from electronics chains, two bright spots for the holiday season. And they take in Wal-Mart Stores Inc., the world's largest retailer, which no longer reports monthly sales.

Stocks rose moderately after the sales report was released and mostly finished up. Retail stocks rose sharply, with Macy's surging more than 6 percent and Saks up about 4 percent.

Also sparking optimism was a report Friday that U.S. businesses unexpectedly increased their inventories in October, halting a slide of 13 consecutive declines. The small gain raised hopes that businesses will restock their depleted shelves, boost factory production and help bolster the recovery.

Businesses boosted inventories 0.2 percent in October, better than the 0.3 percent drop economists had expected. Total business sales rose 1.1 percent, the fifth straight gain.

Signs of improvement were not limited to the American economy.

China's trade figures for November were the best in a year, with exports falling just 1.2 percent from the same month of 2008. Retail sales, factory output and investment also saw robust growth last month.

Asian markets rallied as investors were heartened by the signs of rising global demand that could lift other economies in the region as consumers in the U.S. and elsewhere begin spending more after months of holding back.

A sustained improvement in Chinese exports could add to pressure from the U.S., Europe and other trading partners for Beijing to let its currency, the yuan, rise. But Chinese officials have shown they are in no hurry to alter their policy of keeping the yuan weak to boost the competitiveness of China's exports.

The November U.S. retail sales report showed auto sales rose 1.6 percent, a solid performance after a 7.1 percent surge in October.

Excluding autos, retail sales rose 1.2 percent - triple the expected gain. And excluding higher gasoline prices, retail sales posted a solid 0.8 percent rise in November.

The broad category of department-stores sales that includes big retailers such as Wal-Mart and Target Corp. posted a 0.8 percent increase. Sales also jumped 2.8 percent at electronics and appliance stores. Sales did fall 0.7 percent at furniture stores, a surprise since analysts had expected a rebound in home sales to bolster demand for furniture.

The overall economy expanded at an annual rate of 2.8 percent in the July-September quarter, the first increase after a record four straight declines. Many analysts have forecast growth to sag a bit in the current quarter and the first half of 2010 if consumer spending weakens under the weight of 10 percent unemployment.

But other analysts said that view may be too pessimistic, given what is happening not only in the United States but in other areas of the globe, especially in China, now the third-largest economy.

"For the first time since World War II, the United States is not leading the global economy out of recession," said Mark Zandi, chief economist at Moody's Economy.com. "This time, it is China leading the way, largely because of their massive stimulus spending. Recent reports are indicative of an economic recovery that is gaining traction nearly everywhere across the globe."

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D'Innocenzio contributed from New York.