Retail sales increased 0.5 percent in October

[November 16, 2011]  WASHINGTON (AP) -- Americans spent more on autos, electronics and building supplies in October. The fifth straight monthly gain in retail sales suggests the economy maintained solid growth at the start of the fourth quarter.

Retail sales increased 0.5 percent, the Commerce Department said Tuesday. Healthy auto sales helped. But even without them, sales rose 0.6 percent -- the best showing since March.

And when excluding autos and sales at gasoline stations, sales rose 0.7 percent, also the biggest increase since March.

Consumers spent more on electronics, appliances, hardware and building supplies. Sales also rose at grocery stores, bars and restaurants and health care stores.

Sales at department stores and specialty clothing stores fell.

Overall, the data were encouraging. Economists said the sales suggest the economy is growing at roughly the same 2.5 percent annual pace as the July-September quarter.

"Although consumer spending is not particularly robust, households do continue to spend and provide moderate support for the overall economy," said Steven A. Wood, chief economist at Insight Economics.

Separately, the government said companies paid less for wholesale goods last month for the first time since June. Inflation pressures are easing as the costs of oil and other commodities have declined.

The Producer Price Index, which measures price changes before they reach the consumer, dropped 0.3 percent in October, the Labor Department said. Excluding the volatile food and energy categories, the core index was unchanged for the first time in 11 months.

The retail sales report is the government's first look each month at consumer spending, which accounts for 70 percent of economic activity.

A rebound in consumer spending was the key reason the economy had its best quarterly growth in a year.

Stronger economic growth helped calm fears that the economy could slide back into a recession. Still, growth would need to be nearly double the third-quarter rate -- consistently -- to make a significant dent in unemployment.

Another concern is that the growth came after consumers spent more while earning less, a trend that economists fear can't be sustained.

Without more jobs and higher pay, consumers may be forced to cut back on spending. And Europe's debt crisis could worsen, which could throw that region into a recession and weaken U.S. growth.

"Overall, the economy appears to be growing at a decent clip," said Paul Dales, a senior U.S. economist at Capital Economics. "We are not convinced that this will be carried into 2012, however, as consumption cannot grow at a faster rate than incomes indefinitely and industry is the sector most vulnerable to Europe's woes."

Americans bought more cars in October. The 0.4 percent rise followed a 4.2 percent surge in September.

Purchases of SUVs and trucks offset a loss in momentum for car sales. Sales have rebounded from the earthquake and tsunami in Japan, which disrupted distribution of parts to U.S. factories and made it harder to obtain some popular models.

The 1.2 percent drop in sales at department stores followed a 1 percent increase in September. The October decline was probably influenced by the weather. Warm weather at the beginning of the month depressed demand for winter clothing, while a snowstorm in the Northeast reduced cut into shopping at the end of the month.

Specialty clothing stores saw sales drop 0.7 percent after a 1.7 percent increase in September.

A broader category of general merchandise stores, which covers big discount stores such as Wal-Mart and Target, had flat sales during the month after a modest 0.6 percent increase in September.

Wal-Mart Stores Inc.'s third-quarter profit slipped 2.9 percent, missing Wall Street expectations. But the world's largest retailer reported its first quarterly revenue gain in its U.S. namesake business in more than two years.

Sales were down at furniture stores, which reflected the continued slump in housing, and at gasoline service stations, likely because of a small decline in gas prices.

[Associated Press; By MARTIN CRUTSINGER]

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