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Washington, Oct. 6 (Bloomberg) -- Spending at U.S. retailers declined in September and consumer optimism soured early this month, signs the economy's biggest source of strength may be starting to fade, reports this week are likely to show.
Retail sales probably fell 1.1 percent in September, the first decrease in four months, the Commerce Department will report Friday, based on the median of 44 forecasts in a Bloomberg News survey. The University of Michigan will probably report the same day that its consumer sentiment index fell this month to 85.2, the weakest since November, the survey showed.
``Christmas 2002 is likely to be more blue than white,'' said Joseph Abate, a senior economist at Lehman Brothers Inc. in New York. ``The labor market remains stubbornly weak, stock prices are falling again, and the looming prospect of war with Iraq is damping consumer spirits.''
The statistics suggest a pall over the economy at the beginning of the final three months of the year, which include the holiday shopping season. Consumer spending accounts for about two- thirds of gross domestic product, and while it was strong enough last year to make the recession one of the mildest on record, pent- up demand is lacking.
Federal Reserve policy makers are taking notice. Consumer spending has ``moderated considerably'' and is growing ``at about half'' the 4.5 percent to 5 percent average pace of growth between 1998 and 2000, Federal Reserve Bank of Atlanta President Jack Guynn said last week.
The economy lost 43,000 jobs last month, the biggest decrease since February, even as the unemployment rate fell to 5.6 percent. August payrolls were revised to show a 107,000 gain, compared with the 39,000 increase estimated a month ago.
Economic Outlook
The economy is expected to grow at a 2.5 percent annual pace in the final three months of the year, down from an expected 3.5 percent pace in the third quarter, according to the median of 53 forecasts in a Bloomberg News survey from Sept. 18 to Sept. 26. For all of 2002, the economy will probably expand 2.5 percent, less than the average gain of 7 percent in the first year following the previous nine recessions.
Most of the expected decline in retail sales will reflect the weakest month for car dealers since May. New cars and light trucks sold at a 16.3 million-unit annual rate in September, down from an 18.7 million pace a month earlier.
Excluding auto dealers, sales at retailers probably rose 0.1 percent. That's one-fourth the August increase and is expected because of weak results at department stores.
Wal-Mart Stores Inc., the world's largest retailer, said sales last month at stores open at least a year were 3 percent to 4 percent higher in the five weeks that ended Oct. 4 than a year ago. The company had expected a gain of 4 percent to 6 percent.
Target Sales
Target Corp., the No. 2 U.S. discount chain, said sales in the past week were ``well below'' expectations and September sales were probably less than last September's 0.2 percent rise.
Best Buy Co. Chief Executive Bradbury Anderson told Bloomberg Television last month that the largest U.S. electronics retailer isn't ``budgeting for things to pick up'' this holiday season.
Also this week, the Labor Department will probably report Thursday for a seventh straight week that more than 400,000 people applied for unemployment insurance benefits in the week ended yesterday. That is a level for initial claims that economists say is consistent with a weak job market.
Discounting by automakers and other producers to lure customers is keeping a lid on inflation. The producer price index probably rose 0.1 percent last month after showing no change in August, the Labor Department is expected to report Friday. Through August, the price of goods at the wholesale level was 1.6 percent lower than a year ago, Labor Department figures showed a month ago.
Core Index
Excluding volatile food and energy prices, the so-called core index for producer prices probably rose 0.1 percent in September following a 0.1 percent decline. For the 12 months ended in August, core prices fell 0.3 percent, the largest decline on record.
Higher costs for imported oil as rising Middle East tensions stoked concern that supplies might be disrupted probably led to a 0.3 percent increase in the Labor Department's import price index, scheduled for release Thursday. Prices of imported goods were down 1.3 percent over the 12 months ended in August.
Other reports this week:
-- Monday, the Fed's report on consumer credit is expected to show that borrowing rose $11.1 billion in August following a rise of $10.8 billion the previous month.
-- Thursday, a report from the Commerce Department is expected to show that wholesalers boosted their inventories by 0.3 percent in August, the third straight monthly rise, following declines in 11 of the previous 12 months. That suggests inventories are in balance with sales and may not fall again.