Solid Oct. retail sales lift hopes for US economy - KLFY News 10

Solid Oct. retail sales lift hopes for US economy

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In this Tuesday, Sept. 24, 2013 photo Kevin Sandoval, of Chelsea, Mass., places a guitar on a rack after trying the instrument out at a music store, in Lowell, Mass. In this Tuesday, Sept. 24, 2013 photo Kevin Sandoval, of Chelsea, Mass., places a guitar on a rack after trying the instrument out at a music store, in Lowell, Mass.

WASHINGTON (AP) -- An increase in shopping last month during the partial government shutdown suggests that the U.S. economy may be more resilient than some have feared.

Retail sales increased 0.4 percent in October, the Commerce Department said Wednesday, after being flat the previous month. That jump shows 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' inventories increased by 0.6 percent in September, the Commerce Department said. This caused several economists to bump up their growth forecasts for the previous June-September quarter but to downgrade their expectations for the current quarter. JPMorgan Chase economist Daniel Silver called the possible upcoming decline in business stockpiles a "significant drag on growth."

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.

But what many consumers saved on gas they spent on other items. Excluding sales at service stations, retail spending rose 0.5 percent last month. 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.

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 are not 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."

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