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Retail Sales Beating Forecasts Support U.S. Growth

Americans snapped up goods from cars to iPhones in September at a faster pace than forecast by economists, showing consumer demand was heading into the year- end holidays on a high note.

The 1.1 percent advance followed a revised 1.2 percent increase in August, the best back-to-back showing since late 2010, Commerce Department figures showed today in Washington. The median forecast of 77 economists surveyed by Bloomberg called for a 0.8 percent rise.

“This keeps the economic expansion moving forward,” said Dean Maki, New York-based chief U.S. economist at Barclays Plc. “Consumer spending is continuing to grow solidly.”

Gains were broad-based, with 12 of 13 retail categories showing an improvement, as shoppers were heartened by higher stock prices and home values. Faster payroll growth would further boost the consumer spending that’s needed to offset a slowdown in business investment, Maki said.

Maki raised his tracking estimate of third-quarter consumer spending to 2.1 percent from 1.8 percent, and for gross domestic product to 2 percent from 1.8 percent after the report.

Shares climbed as the retail sales report and earnings from Citigroup Inc. overshadowed a slump in commodity prices. The Standard & Poor’s 500 Index rose 0.8 percent to 1,440.13 at the close in New York.

Other reports today showed that inventories in the U.S. rose at a slower pace in August, indicating that unexpected strength in sales may be starting to drain stockpiles, and manufacturing in the New York region contracted in October for a third straight month.

Global Economy

Globally, inflation in China cooled in September, approaching the slowest pace in two years, giving the government room to ease policy should growth keep deteriorating. In London, asking prices for homes surged to a record this month.

Economists’ estimates for retail sales in the Bloomberg survey ranged from gains of 0.3 percent to 1.3 percent. The reading for August was revised from an initially reported increase of 0.9 percent.

Sales climbed 1.3 percent at automobile dealers, after a 1.8 percent increase the prior month, today’s report showed. The results are in sync with industry figures issued earlier this month.

Cars and light trucks sold at a 14.9 million annual pace in September, the most since March 2008, according to Ward’s Automotive Group. Chrysler Group LLC and General Motors Co. (GM) reported gains.

Auto Sales

“We continue to be encouraged by positive signs from the housing sector, lower jobless claims, higher consumer sentiment and higher consumer spending,” Kurt McNeil, GM’s vice president of U.S. sales, said on an Oct. 2 conference call. “The stiffest headwinds are uncertainty, some of which is related to the sovereign debt crisis in Europe and concerns about the pace of growth here at home.”

Celenia Cruz, a nurse, is among those who are spending more. She said she recently got a new job at Stanford University that came with a big raise. Cruz, who’s from San Jose, California, is finishing up a vacation in Washington.

“I’ve been spending more money on clothes and a vacation, like this one,” she said. “Today is our last day in D.C., we’ve been here for four days.”

Retail sales excluding autos increased 1.1 percent, the most since January, today’s report showed. They were projected to rise 0.7 percent, according to the Bloomberg survey median.

iPhone 5

Electronics dealers showed a 4.5 percent jump in sales, the biggest gain since October 2011. Apple’s iPhone 5 became available on Sept. 21 in the U.S. and more than 5 million units sold in the first three days, surpassing a record set last year by the previous model. Demand for the new handset exceeded the initial supply, the Cupertino, California-based company said.

Non-store retailers, which include online merchants, may have also benefited from demand for the new device, leading to a 1.8 percent gain in receipts.

The gains in spending didn’t stop there as clothing stores racked up a 0.6 percent increase in receipts last month, today’s report showed.

Retailers may have benefited from a last-minute rush for back-to-school items, with September same-store sales topping analysts’ estimates at discount and specialty-apparel chains. Target Corp. (TGT), the second-biggest U.S. discounter, had a 2.1 percent gain from a year earlier, and TJX Cos. (TJX), the owner of T.J. Maxx and Marshalls, reported a 6 percent increase.

Excluding Autos

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales climbed 0.9 percent, the best performance since July, after a 0.1 percent gain the previous month.

There is “some resilience on the part of the consumer,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who projected a 1 percent increase in sales. “We are going to continue to see slow, but steady, growth.”

A stronger labor market would help boost the outlook for retail sales. Payrolls rose 114,000 in September after a 142,000 increase the prior month, according to Labor Department figures. The unemployment rate dropped to a three-year low of 7.8 percent from 8.1 percent.

Household purchases may have grown at a 1.9 percent annual rate in the third quarter after a 1.5 percent gain in the prior three months, according to the median forecast in a separate Bloomberg survey of economists taken from Oct. 5 to Oct. 10. Spending will rise 2.1 percent this quarter, the survey showed.

Companies in the U.S. boosted inventories by 0.6 percent in August following a 0.8 percent gain the prior month, Commerce Department data also showed today. Sales at factories, wholesalers and retailers climbed 0.5 percent after advancing 0.9 percent the prior month.

The Federal Reserve Bank of New York’s Empire State index rose to minus 6.2 this month from minus 10.4 in September, which was the lowest since April 2009.

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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