Retail Sales Rose, Manufacturing Climbed: U.S. Economy Preview

Retail sales probably rose in October and U.S. manufacturing accelerated, helping give the world’s biggest economy a boost entering the final months of 2011, economists said before reports this week.

The 0.3 percent rise in purchases would follow a 1.1 percent gain that was the most in seven months, according to the median forecast in a Bloomberg News survey ahead of Commerce Department figures on Nov. 15. Industrial production climbed 0.4 percent, twice as much as in September, according to the survey median. The cost of living was little changed and home construction cooled, other data may show.

Unemployment at 9 percent and limited wage growth help explain why retailers like Macy’s Inc. (M) and Kohl’s Corp. (KSS) plan to use more discounts to lure consumers this holiday shopping season. At the same time, equipment purchases and record exports are propelling manufacturing and sustaining a recovery that’s yet to extend to the housing market.

“There’s positive momentum in demand, which suggests retailers should see a decent Christmas,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “The economy is continuing to expand though it’s not firing on all cylinders.”

Retail sales may reflect improved demand for cars as Americans returned to showrooms. Auto purchases ran at a 13.2 million annual rate in October, the highest since February and up from a 13.04 million pace in September, according to data from Ward’s Information Products.

New-Vehicle Demand

“Consumers are just saying it’s time to get a new vehicle,” Ken Czubay, Ford Motor Co. (F)’s U.S. sales chief, said on a Nov. 1 conference call. “We’re seeing that more and more everyday from our dealers.”

Sales excluding automobiles climbed 0.2 percent in October after a 0.6 percent jump, according to the median forecast in the Bloomberg survey.

Even with the projected slower pace in retail sales, consumer spending in the current quarter is tracking at a 2.5 percent annual rate after a 2.4 percent pace in the third quarter, according to economists at Credit Suisse in New York.

Retailers are crafting incentives to lure more shoppers during the November-December holiday period. Menomonee Falls, Wisconsin-based Kohl’s, the fourth-largest U.S. department-store company, said it has stepped up marketing and promotions.

‘Heavy Promotions’

Macy’s, the second-biggest U.S. department-store chain, is seeing “the lower-income customer is struggling more than the middle- or upper-end customer,” according to Chief Financial Officer Karen Hoguet. The Cincinnati-based retailer has planned “heavy promotions” for the holiday season.

“We feel confident that the momentum we have heading into the fourth quarter, combined with our holiday strategies, bode well for that quarter,” Hoguet said on a conference call on Nov. 9. “We’ll have a spectacular Christmas.”

The Standard & Poor’s Supercomposite Retailing Index has gained 7.7 percent this year through Nov. 11, while the broader S&P 500 Index climbed 0.5 percent during the same period.

Manufacturing remains a pillar of the recovery, a Federal Reserve report may show on Nov. 16. Output at factories, mines and utilities may have increased in October by the most in three months.

The pickup at factories extended into November, regional Fed reports may show. The Philadelphia-area manufacturing index, due Nov. 17, rose to the highest level since April, according to the median projection in a Bloomberg survey. The so-called Empire manufacturing gauge for the New York region, to be released Nov. 15, may have also improved.

Distressed Housing

The economy is still without support from a housing market restrained by the overhang of distressed properties, which limits prices and discourages building. Starts fell 7.9 percent in October to a 606,000 annual rate, from a 658,000 pace that was the fastest since April 2010, according to the Bloomberg survey median.

A stronger labor market is needed to speed up growth in the third year of the recovery and to cushion the U.S. from risks related to Europe’s sovereign debt crisis. Payrolls climbed by 80,000 workers in October, the fewest since June. While the jobless rate fell to 9 percent from 9.1 percent, it has been stuck near 9 percent or higher for more than two years.

The Fed is “focusing intently on supporting job creation,” Chairman Ben S. Bernanke said on Nov. 10 in El Paso, Texas, describing unemployment as “painfully high.” While the economy is “far from where we want it to be,” he said, inflation may stay under control for the “foreseeable future.”

The consumer-price index, the broadest of the monthly price gauges, was unchanged in October from a month earlier, according to the Bloomberg survey median ahead of Labor Department figures due Nov. 16.

                        Bloomberg Survey

============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
============================================================
PPI  MOM%                11/15      Oct.      0.8%     -0.1%
Core PPI MOM%            11/15      Oct.      0.2%      0.1%
Retail Sales MOM%        11/15      Oct.      1.1%      0.3%
Retail ex-autos MOM%     11/15      Oct.      0.6%      0.2%
Empire Manu. Index       11/15      Nov.      -8.5      -2.2
Business Inv. MOM%       11/15     Sept.      0.5%      0.1%
CPI  MOM%                11/16      Oct.      0.3%      0.0%
Core CPI MOM%            11/16      Oct.      0.1%      0.1%
Ind. Prod. MOM%          11/16      Oct.      0.2%      0.4%
Housing Starts ,000’s    11/17      Oct.      658       606
Housing Starts MOM%      11/17      Oct.     15.0%     -7.9%
Philly Fed Index         11/17      Nov.      8.7       9.0
============================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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