U.S. Economy: Sales, Small-Business Optimism Climb

Sales at U.S. retailers increased more than forecast in November and optimism among small businesses rose to a three-year high, signaling the economy was gaining momentum as the holiday season began.

The 0.8 percent gain in purchases followed a 1.7 percent jump in October that was larger than previously estimated, Commerce Department figures showed today in Washington. The National Federation of Independent Business’s sentiment gauge rose by 1.5 points to 93.2, the highest since December 2007, as more companies projected sales will grow.

Treasury securities fell as the figures confirmed a yearend-sales rebound at retailers like Target Corp. and Macy’s Inc. Federal Reserve policy makers today said the pace of economic growth was not enough to lower unemployment, one reason why they will maintain the expansion of record stimulus.

“There’s no question this will be the strongest quarter for consumer spending since before the recession,” said Chris Low, chief economist at FTN Financial in New York, who correctly forecast the increase in sales. “The economy has pretty good momentum going into the new year.”

The yield on the benchmark 10-year Treasury note reached 3.46 percent, the highest level since May. The yield was at 3.44 percent at 4:14 p.m. in New York, compared with 3.28 percent late yesterday. The Standard & Poor’s 500 Index rose 0.1 percent to 1,241.59 at the 4 p.m. close, restrained by the surge in interest rates.

Data for GDP

The median forecast of 71 economists surveyed by Bloomberg News called for a 0.6 percent rise in retail sales. Estimates ranged from gains of 0.2 percent to 1.5 percent. Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales climbed 0.9 percent, the most since August.

The central bank’s Federal Open Market Committee said today that unemployment was too high, repeated its pledge to leave the benchmark interest rate low for an “extended period” and retained a $600 billion bond-purchase program through June.

“The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment,” the Fed statement said. “Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.”

Wholesale Costs Climb

A report from the Labor Department today also showed wholesale costs rose in November by the most in eight months, led by higher prices for gasoline, heating oil and fruit. The producer price index increased 0.8 percent from the prior month after a 0.4 percent rise.

The so-called core measure, which excludes more volatile food and energy costs, rose 1.2 percent from November 2009, the smallest year-over-year gain in five months and matching forecasts.

“Businesses still lack the pricing power to pass on higher commodity costs,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Measures of inflation are still too low for comfort.”

Eight of 13 major categories in the retail sales report showed increases last month. Sales at general merchandise stores climbed 1.3 percent, the most since October 2009, and purchases at non-store retailers, which include Internet merchants, advanced 2.1 percent, the biggest gain of the year.

Weak Spot

Electronics and appliances stores were among retailers that showed weakness last month as sales fell 0.6 percent. Best Buy, the world’s largest consumer-electronics retailer, reported a 4.4 percent decline in third-quarter profit as U.S. sales dropped more than expected. The Richfield, Minnesota-based company said today sales at stores open for at least 14 months sank 5 percent on weaker demand for televisions and entertainment products.

Retailers began cutting prices earlier in November than the past few years and continued through Black Friday, the day after Thanksgiving. Sales at stores open at least a year climbed by the most in eight months from November 2009, industry reports showed.

Target and Costco Wholesale Corp. led the sales gains for discounters last month, while teen retailer Abercrombie & Fitch Co. and department stores Macy’s and J.C. Penney Co. also posted better-than-forecast increases.

Raising Forecast

Today, the International Council of Shopping Centers revised its November-December holiday-season sales forecast up by 0.5 percentage point to a range of 3.5 percent to 4 percent, citing “the strong November performance and promising trends in early December.”

Purchases are broadening out beyond holiday gifts and clothing. Home Depot Inc., the world’s largest home-improvement retailer, lifted its full-year profit forecast on stronger fourth-quarter demand for plumbing and electrical items and Christmas trees.

“As we look at November into December, we see strength across the store,” Chief Financial Officer Carol Tome said Dec. 8 by telephone from an analysts’ meeting in Boston. The Atlanta- based company had a “terrific Black Friday.”

The National Retail Federation has forecast the November- December holiday sales gain will be the biggest since 2006. A Bloomberg survey taken Dec. 2 to Dec. 8 showed economists raised 2011 projections for consumer purchases, the biggest part of the economy, to 2.6 percent from 2.3 percent estimated last month.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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