Retail Sales in U.S. Decrease for First Time in 4 Months

Photographer: Andrew Harrer/Bloomberg

A man carries a Gap Inc. shopping bag while walking through the Fair Oaks Mall in Fairfax, Virginia, U.S., on Monday, Nov. 12. 2012. Close

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Photographer: Andrew Harrer/Bloomberg

A man carries a Gap Inc. shopping bag while walking through the Fair Oaks Mall in Fairfax, Virginia, U.S., on Monday, Nov. 12. 2012.

Retail sales fell in October as American consumers pulled back after a three-month shopping spree and superstorm Sandy slammed into the East Coast, shutting malls and auto showrooms.

The 0.3 percent drop followed a 1.3 percent increase in September that was larger than previously reported, Commerce Department figures showed today in Washington. While it was able to collect information from the affected area, the agency said it couldn’t quantify the impact of the biggest Atlantic storm.

Companies such as General Motors Co. (GM) and Ford Motor Co. (F) said last month’s storm-related sales slump will probably reverse as brighter job prospects, rising home prices and sturdier finances boost household confidence. At the same time, today’s report showed Americans bought fewer non-essentials, which may reflect mounting concern over possible tax changes and limited wage growth that pose risks for the biggest part of the economy.

“Some of it is due to hurricane taking away some discretionary sales,” said Jonathan Basile, director of U.S. economics at Credit Suisse in New York. “Spending still seems subpar, and consumers are facing headwinds on their paychecks and incomes. They’re also faced with uncertainties about taxes going into year-end.”

Stocks fell as concern about the budget debate in Washington overshadowed an advance in technology shares after Cisco Systems Inc.’s earnings topped estimates. The Standard & Poor’s 500 Index dropped 0.5 percent to 1,368.38 at 12:33 p.m. in New York.

Wholesale Prices

Other reports today showed U.S. wholesale prices unexpectedly dropped in October and inventories climbed in September.

The decline in wholesale prices was led by falling fuel and vehicle costs. The producer-price index dropped 0.2 percent last month after rising 1.1 percent in September, according to Labor Department data.

Stockpiles climbed 0.7 percent in September after a 0.6 percent gain, according to another Commerce Department report today. Sales at factories, wholesalers and retailers rose 1.4 percent, the biggest gain since March 2011, after advancing 0.6 percent in August.

The median forecast of 83 economists surveyed by Bloomberg for October retail sales called for a drop of 0.2 percent. Estimates ranged from a decline of 1.2 percent to an advance of 0.6 percent. The September reading was revised from an initially reported 1.1 percent gain.

IPhone Sales

October’s slowdown comes after the prior two months marked the best back-to-back retail sales showing since late 2010. Part of the jump in purchases during the most-recent period was the result of households snapping up Apple Inc.’s new iPhone 5. Support also came from car and light truck sales, which climbed in September to a 14.9 million pace, the fastest in more than four years, according to figures from Ward’s Automotive Group.

Those gains weren’t repeated in October, when Sandy prevented potential shoppers from getting to stores. Today’s retail sales figures show the storm’s effects are starting to show up in economic data.

The Commerce Department said it received responses from 2,579 retailers last month, within the 12-month range of 2,517 to 2,781.

“Even though we cannot isolate the effect, we did receive indications from the companies that the hurricane had both positive and negative effects on the retail sales data,” the Commerce Department said in a statement.

Eight of 13 major categories showed a decline last month, led by auto dealers and building-material stores. Service- station sales and food purchases jumped.

Discretionary Purchases

“When consumers are cautious they tend to spend more on staples than discretionary items, and that’s exactly what happened this month,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York, who correctly forecast the decline in sales. “The broad story is that consumers remain cautious.”

Sales decreased 1.5 percent at automobile and parts dealers after a 1.7 percent gain the prior month. Industry figures showed sales fell to a 14.2 million pace in October after Sandy struck during the auto industry’s busiest time of the month. Carmakers said those sales should be made up by the end of the year.

Retail sales excluding autos were little changed. They were projected to rise 0.2 percent, according to the Bloomberg survey median.

Macy’s, Kohl’s

Several retailers reported a pickup in October demand despite the storm. Same-store sales at Macy’s Inc., the second- biggest U.S. department-store chain, rose 4.1 percent, topping the 4 percent average estimate of analysts surveyed by Retail Metrics Inc. Kohl’s Corp.’s same-store sales climbed 3.3 percent, beating estimates for a 0.8 percent gain.

The retail sales category used to calculate gross domestic product, which excludes auto dealers, building-material stores and service stations, declined 0.1 percent after a 0.9 percent increase in the previous month, today’s report showed.

As the holiday shopping seasons begins, Hasbro Inc. (HAS)’s retail customers are “looking forward to a good year,” David Hargreaves, chief operating officer of the Pawtucket, Rhode Island-based toymaker, said during a call with analysts on Oct. 22. “Certainly consumer demand has held up pretty well. I think they’re sort of cautiously optimistic.”

Improving confidence could help keep sales on the rise. The Thomson Reuters/University of Michigan consumer sentiment gauge advanced to a five-year high in November. Rising house prices are also shoring up wealth: The S&P/Case-Shiller index of home values in 20 cities has risen from a year earlier for the past three months, the longest positive stretch in two years.

Fiscal Cliff

Even with the gain in confidence, the so-called fiscal cliff of tax increases and government cutbacks totaling $607 billion and scheduled to take effect next year serves as a reminder to households that the expansion faces hurdles.

Compensation is also lagging behind. Average hourly earnings climbed 1.6 percent in October from the same time last year, the smallest gain since comparable year-over-year records began in 2007, a Labor Department report showed on Nov. 2. Earnings for production workers rose 1.1 percent in the 12 months to October, the weakest since records began in 1965.

To contact the reporter on this story: 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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