Much has been made of the way realty woes seemed to jump from the Northeast to California. Now new data suggest the same pattern for a second malady - a consumer slowdown.

Even as Northeast merchants are digging their way out of a protracted sales slump, California merchants are being buried, according to recent figures from TeleCheck Services Inc., Houston.

In an October survey, Northeast merchants said sales were up an inflation-adjusted 5.05% from year-earlier levels. That was the second consecutive monthly increase after almost a full year of declines.

By contrast, Western merchants posted a 3.4% decline for the month-a far cry from the average 9.2% uptick posted during the first quarter of the year.

The worst distress apparently is in riot-torn Los Angeles, where October sales were 8.26% below those of a year earlier, according to TeleCheck.

That is a stunning reversal from inflation-adjusted gains of roughly 13% in January and February.

Implications for Banks

Two-thirds of the nation's gross domestic product is tied up in consumer payments, and any indication that sales are sluggish has implications for financial institutions.

When consumers hold back, they write fewer checks and make fewer credit card charges. Banks lose out on transaction fees, interest income, and even expansion opportunities. Becalmed retailers can afford fewer employees and may have more difficulty making loan payments.

That being the case, the TeleCheck data offer only modest encouragement to Northeast retailers and bankers - and indicate that California's recession may have some time to run.

As the Northeast's October uptick was only its second year-to-year gain in retail sales, "I wouldn't say we should bring out the party horns and start celebrating," says James Chessen, chief economist at the American Bankers Association.

And if the pattern of failing retail sales persists in California, "we will see more job losses and further deflation of real estate," said economist Mark Green of Wells Fargo Bank.

With the holiday season at hand, economists are especially concerned about whether soft retail results in certain U.S. regional economies will persist. Typically, November and December account for at least one-fourth of yearly sales.

Experts base their modest optimism on two factors: Gov. Bill Clinton's election to the presidency may improve consumer confidence and, according to William Ford, a Telecheck economic adviser modest nationwide retail sales gains surfacing this fall will build through yearend.

To be sure, TeleCheck's figures are not the only indicators of consumer activity. Indeed, the nation's largest retailers reported significant gains in year-to-year comparisons for October. Wal-Mart Stores Inc. and K mart Corp., two big discounters, posted double-digit nominal gains.

Mr. Ford contends that his data, which exclude the nation's largest retailers, give a better picture of what is going on at the grass roots of retailing. "We represent more of the Mom-and-Pop operations," he said.

Viewing Economic Performance

By analyzing the volume and dollar value of checks cleared by Houston-based TeleCheck, a division of First Financial Management Corp., Mr. Ford develops a monthly snapshot of how the economy is performing, as indicated by retail sales.

The survey is based on TeleCheck's analysis of about 10,000 merchants, or 10% of its clientele. Telecheck approves personal checks at the point of sale using technology similar to credit card approval systems.

While checks are not the only indicator of consumer spending, The Nilson Report, based in Santa Monica, Calif., estimates that checks will account for 37% of the $3.463 trillion in consumer payments for goods and services this year.

Even at that, Mr. Ford acknowledges retail sales aren't the be-all of an economic recovery. But the former chairman of the Federal Reserve Bank of Atlanta says that, because retailing provides almost two-thirds of gross domestic product, it is an important indicator for banks.

Relevance for Bank Clients

"Banks should take a look at these numbers because when check volume is high it means business is good for retailers, which means their business with their banks is probably going well, too," says Mr. Ford, who also is a professor at Middle Tennessee State University, Murfreesboro.

Looking at regional economies through the lens provided by the TeleCheck data, it appears few areas of the country have established strong retail momentum.

Southeast merchants surveyed by TeleCheck in October showed an extraordinary 13.7% sales gain over the year-ago period. But analysts attributed the increase to rebuilding efforts in the wake of Hurricane Andrew.

In the Southwest, merchants in the survey showed a 3.5% year-to-year sales gain in October, after declines in July and August. Here again, recent results did not match growth recorded early in the year.

Erratic Midwest Data

Midwest merchants have posted somewhat erratic results since February. The sales decline of 2.24% in October from the year ago period was down from a fractional gain in September and a 2.42% gain in August.

Merchants in the Middle Atlantic states appear to have parted company with their California counterparts. The region's 4.18% year-to-year gain in October came after three conserve months of sales declines.

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