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 Retail sales rose 0.4 percent in October, the Commerce Department
said Wednesday, after being flat the previous month. The increase
showed that many consumers remain willing to spend as the
all-important holiday shopping season nears.
At the same time, other data released Wednesday point to an economy
that's still struggling to reach full health:
— Sales of existing homes fell 3.2 percent last month from
September, the National Association of Realtors said. Higher
mortgage rates and a shortage of homes on the market contributed to
the drop-off. So did delays by potential homebuyers during the
government shutdown.
— Businesses boosted their stockpiles 0.6 percent in September, the
Commerce Department said. Some economists worry that businesses may
slow their stockpiling if consumer demand falters at the end of the
year. If that happened, JPMorgan Chase economist Daniel Silver said
it could exert a "significant drag on growth."
But the upturn in retail sales last month was a positive surprise.
Analysts had speculated that retail sales would be unchanged in
October, slowed by the 16-day partial government shutdown and by
cheaper gasoline that would mean less money spent at the pump.
Whatever money many consumers saved on gas in October they spent
elsewhere. Excluding sales at service stations, retail spending rose
0.5 percent. Sales of furniture, electronics, appliances and
clothing all showed solid gains.
Congress likely blunted some of the impact of the shutdown by
guaranteeing back pay for 800,000 furloughed federal workers.
"There could be the possibility that all those furloughed workers
knew they were going to be paid, so they may have taken the
opportunity to take a mini-vacation and go shopping," said Jennifer
Lee, senior economist at BMO Capital Markets.
Because consumers fuel about 70 percent of U.S. economic activity,
expectations have arisen that the better-than-expected retail sales
last month could build momentum for November and December.
Before October's retail sales report, most analysts predicted that
the overall economy would grow at a weak annual rate below 2 percent
in the current quarter. But after the report was issued Wednesday,
Paul Dales, senior U.S. economist at Capital Economics, boosted his
forecast: He thinks additional consumer spending will cause the
overall economy to grow at an annual rate between 2 percent and 2.5
percent this quarter.
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Coupled with the retail sales was a slight decline last month in
consumer prices.
The consumer price index fell 0.1 percent in October, the Labor
Department said. A sharp 2.9 percent drop in gasoline prices largely
caused inflation to be held in check. Over the past 12 months,
inflation has averaged 1 percent, well below the Federal Reserve's 2
percent target.
U.S. gasoline prices began falling in the spring and reached
two-year lows earlier this month. The average price of a gallon of
gas was $3.21, according to AAA's Daily Fuel Gauge Report.
And just as clothing purchases rose in October, consumers benefited
from declining apparel prices. They fell 0.5 percent for the second
consecutive month.
But inflation rates this low are a double-edged sword: Lower prices
tend to signal an economy struggling to grow at a healthy pace.
Inflation has been modest over the past four years, with prices held
down by the weak recovery from the Great Recession. Unemployment
remains high at 7.3 percent. And many Americans who do have jobs
aren't receiving pay increases. That's made it difficult for
consumers to spend more and for retailers to charge more.
"Can spending hold up?" said Joel Naroff, president of Naroff
Economic Advisors, in a client note. "That is not clear. Real
earnings, which are adjusted for inflation, rose moderately but only
because inflation fell. Not adjusted for inflation, compensation
went essentially nowhere."
[Associated
Press; JOSH BOAK and MARTIN CRUTSINGER, AP Economics Writers]
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