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 Other data on Friday showed a second straight monthly decline in
producer prices as the cost of services fell. Still, the soft
inflation and signs of slowing consumer spending are unlikely to
deter the Federal Reserve from raising interest rates next month,
economists said.
"The weak reports will provide some cause for caution at the Fed,
and while they are unlikely to change the prevailing bias for a
December 'liftoff,' they could add to the case for a shallower
tightening path thereafter," said Millan Mulraine, deputy chief
economist at TD Securities in New York
The Commerce Department said retail sales edged up 0.1 percent last
month after being unchanged in both September and August. Economists
had forecast sales increasing 0.3 percent.
Sales at auto dealerships fell 0.5 percent last month after rising
1.4 percent in September. The decline was surprising given that
automakers reported strong sales for October. Economists said heavy
discounting to attract buyers was likely to blame for the
discrepancy.
A 0.9 percent drop in the value of sales at service stations, which
reflected lower gasoline prices, also helped to restrain retail
sales last month.
Retail sales excluding automobiles, gasoline, building materials and
food services rose 0.2 percent after a 0.1 percent gain in
September. These so-called core retail sales correspond most closely
with the consumer spending component of gross domestic product.
The lackluster report suggests that savings from cheaper gasoline
are being used to pay rents, which have increased substantially over
the past year.
Barclays trimmed its fourth-quarter GDP estimate by one-tenth of a
percentage point to a 2.4 percent annual rate. The weak October
retail sales also could raise concerns about the upcoming holiday
shopping season.
Economists, however, are optimistic of sturdy consumer spending in
the final months of the year, as a pickup in job growth and low
inflation boost disposable income.
CONSUMERS UPBEAT
That view was supported by a separate report showing the University
of Michigan's consumer sentiment index rose to 93.1 in early
November from a reading of 90.0 in October.
The survey showed an improvement in buying plans for large
discretionary purchases, especially vehicles. Lower-income
households also were upbeat about their prospects in November.
"The rise in confidence to the level last seen in July might ease a
few concerns at the Fed about slowing growth in recent months," said
John Ryding, chief economist at RDQ Economics in New York.
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A third report from the Labor Department showed its producer price
index fell 0.4 percent last month after dropping 0.5 percent in
September.
In the 12 months through October, the PPI fell 1.6 percent, the
largest decline since the revamped series started in 2009 and
following on the heels of a 1.1 percent drop in September. October
also marked the ninth straight 12-month decrease in the index.
The weak spending and inflation data did not significantly shift
expectations the Fed will raise rates next month in the wake of
October's robust employment report.
U.S. rates futures implied that traders saw a 66 percent chance of a
rate hike in December, compared to 70 percent on Thursday, according
to CME Group's FedWatch. The U.S. central bank has kept its
benchmark overnight interest rate near zero since December 2008.
The Standard & Poor's retail index <.SPXRT> fell 2.28 percent,
underperforming an overall weak U.S. stock market. Retailer Macys'
<M.N> dropped 2.5 percent and department store operator Kohls
<KSS.N> declined 6.5 percent.
Prices of U.S. Treasuries were trading higher and the dollar rose
against a basket of currencies.
Economic growth braked to a 1.5 percent rate in the third quarter as
businesses worked through an inventory glut and energy companies
continued to cut back spending in response to lower oil prices.
But a fourth report from the Commerce Department suggested the drag
on third-quarter growth from inventories was probably not as large
as initially thought. Retail inventories excluding autos, which go
into the GDP calculation, increased 0.5 percent in September after a
similar rise in August.
With a report earlier this week showing a solid rise in wholesale
inventories in September, JPMorgan said it expected third-quarter
GDP would be raised to a 2.3 percent rate when the government
publishes its revision later this month.
That, however, means inventories would again weigh on growth in the
fourth quarter.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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