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U.S. Economy: Sales Rise More Than Forecast, Driving Growth

U.S. Retail Sales Rise More Than Forecast
Customer John Bozek looks at a 2011 Ford Motor Co. Fiesta at the Capital Ford dealership in Raleigh, North Carolina. Photographer: Jim R. Bounds/Bloomberg

Retail sales rose more than projected in October as American shoppers gave the economy a boost at the start of the fourth quarter.

The 0.5 percent gain, helped by the biggest jump in electronics purchases in two years, followed a 1.1 percent increase for September, Commerce Department figures showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg News called for a rise of 0.3 percent.

“Another recession is pretty unlikely,” said Samuel Coffin, an economist at UBS Securities in Stamford, Connecticut, who correctly predicted the gain in retail sales. The report “suggests a very strong start to the quarter. We’ll continue expanding at a better pace.”

Another report showed producer prices fell for the first time in four months, which may make it easier for retailers like Macy’s Inc. and Kohl’s Corp. to use discounts and maintain the sales momentum through the holiday shopping season. Gains in consumer spending, which accounts for about 70 percent of the economy, are vital to bolstering the recovery at a time when Europe’s debt crisis threatens to slow sales overseas.

Stocks rose, propelled by technology shares, as the sales figures and separate figures showing New York-area manufacturing expanded in November for the first time in six months tempered concern about Europe’s debt crisis. The Standard & Poor’s 500 Index climbed 0.5 percent to 1,257.81 at the close in New York.

Manufacturing Pickup

The Federal Reserve Bank of New York’s general economic index rose to 0.6 from minus 8.5 in October. Readings higher than zero signal companies in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are expanding.

There are decreasing odds that the Fed will need to ease policy further amid signs the world’s largest economy is “poised for growth,” Federal Reserve Bank of Dallas President Richard Fisher said yesterday in an interview at Bloomberg’s headquarters in New York.

“I’m more comfortable now in terms of not -- this is me personally speaking -- not anticipating greater accommodation,” he said. “The direction we’re moving in is positive.”

Goldman Sachs Group Inc., the fifth-biggest U.S. bank, is preparing for a faster global economic rebound than most forecasters expect, Chairman and Chief Executive Officer Lloyd C. Blankfein said.

“I don’t think that we can conclude that this slowdown is secular rather than cyclical change,” Blankfein, 57, said today at an investor conference in New York hosted by Bank of America Corp.’s Merrill Lynch unit. “The world will snap back and it will be a surprise and it will be faster than people think.”

Producer Prices

Taking into account today’s sales data, the U.S. economy is growing at about a 3 percent annual rate this quarter from a previously projected 2.5 percent pace, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a note to clients. Economists at Morgan Stanley boosted their running estimate up to 3.5 percent from 3.3 percent.

The producer price index declined a more-than-projected 0.3 percent in October after a 0.8 percent rise a month earlier, Labor Department figures showed. Prices excluding volatile food and energy were unchanged, the first month without an increase since November 2010.

Energy prices declined 1.4 percent, led by cheaper heating oil, gasoline and natural gas. Passenger cars and light trucks also fell in October.

Costs Fall

The report showed cheaper raw materials and partially finished goods, indicating companies may pass along the cost savings to customers as their profit margins are under less pressure.

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.

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.

Sales at electronics stores advanced 3.7 percent in October, the most since November 2009, today’s Commerce Department report showed. Demand at non-store retailers, including Internet and mail-order companies rose 1.5 percent, the most in nine months. Both may reflect demand for the next generation of Apple Inc. iPhones.

Apple Phones

Apple sold more than 4 million iPhone 4S devices in the first three days after it went on sale on Oct. 14, setting a record and more than double the 1.7 million sold by the Cupertino, California-based company last year, during the introduction of the previous model.

The company’s profit for the quarter ended Sept. 24 missed analysts’ predictions for the first time in at least six years, evidence that customers delayed iPhone purchases before the release of the latest model.

Nine of 13 major categories showed gains last month, according to today’s retail report.

Sales rose 0.4 percent at automobile dealers, after a 4.2 percent increase the prior month, today’s report showed. The results are in sync with industry figures.

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.

Auto Sales

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

Purchases excluding autos increased 0.6 percent, today’s report showed. Sales minus autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales climbed 0.6 percent after a 0.5 percent increase in the previous month.

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 smallest increase since June.

The jobless rate has been stuck around 9 percent or higher for more than two years. Hourly wages adjusted for inflation were down 1.8 percent in the 12 months ended in September. The savings rate for the month dropped to the lowest level since December 2007 as the lack of income forced households to put away less in reserve.

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