U.S. Economy: Sales Exceed Forecasts, Inflation Cools

Retail sales in the U.S. climbed more than forecast in September, easing concern that unemployment stuck near a 26-year high will bring the recovery to a halt.

Purchases rose 0.6 percent following a 0.7 percent gain in August that was larger than previously estimated, according to Commerce Department data issued today in Washington. Other reports showed inflation cooled and manufacturing in the New York region accelerated.

An unexpected decline in consumer confidence was a reminder that a jobless rate forecast to exceed 9 percent through next year will curb the spending that accounts for 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke today said the recovery may need additional monetary stimulus because inflation is too low and too many Americans are still out of work.

“Today’s reports are all consistent with Bernanke’s message,” said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston. “The consumer and the economy are still in need of support, as private job creation is insufficient to cause a material improvement in the unemployment rate and in consumer confidence.”

Stocks rose after fluctuating between gains and losses as expectations for further Fed easing were offset by concerns over financial-company earnings after U.S. regulators said they were aggressively investigating possible falsification of documents used in foreclosure proceedings.

Stocks Fluctuate

The Standard & Poor’s 500 Index advanced 0.2 percent to 1,176.19 at the 4 p.m. close in New York. The yield on the benchmark 10-year Treasury note rose to 2.56 percent from 2.51 percent late yesterday on the stronger economic data.

Retail sales were projected to rise 0.4 percent after a 0.4 percent gain previously reported for August, according to the median estimate of 80 economists in a Bloomberg News survey.

A smaller-than-forecast increase in the cost of living highlighted Bernanke’s concerns that inflation is falling short of the Fed’s goals, raising borrowing costs in real terms.

Consumer prices rose 0.1 percent in September, less than forecast, figures from the Labor Department showed. Core prices, which exclude food and fuel costs, were little changed to cap a 0.8 percent increase in the past 12 months, the smallest year-over-year gain since 1961.

Target Corp., the second-biggest discount retailer behind Wal-Mart Stores Inc., said last week that it would lower prices on more than 1,000 toys to attract shoppers. Its larger rival responded this week with its own discounts, advertising savings on brands such as Barbie and Nerf toys.

Consumer Confidence

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment reported today decreased to 67.9, the lowest since July, from 68.2 in September. Economists had forecast an October reading of 68.9, according to the median estimate in a Bloomberg survey.

Retail sales advanced broadly, with clothing stores the only major category to show a decline in demand last month. Sales rose 1.6 percent at car dealers, their best performance since March and in line with industry figures released earlier this month.

Excluding auto dealers, purchases rose 0.4 percent, also exceeding the projected 0.3 percent increase, according to the survey median.

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales improved 0.4 percent after a revised 1 percent gain the prior month that was larger than previously estimated.

Growth Forecast

The updated figures prompted economists at Morgan Stanley to raise their forecast for third-quarter economic growth to 2.3 percent from 1.8 percent before the report. The economy expanded at a 1.7 percent annual pace in the second quarter, slowing from 3.7 percent in the previous three months.

The National Retail Federation is forecasting holiday sales will be the best in four years and companies are planning on stepping up hiring as a result.

Toys “R” Us Inc., based in Wayne, New Jersey, last month said it would hire about 45,000 seasonal employees, doubling its U.S. workforce. The increase in seasonal employees is 10,000 more than last year.

Kohl’s Corp., the fourth-largest U.S. department store chain, plans to hire about 40,000 people this holiday season, 21 percent more than last year, the Menomonee Falls, Wisconsin- based company said in a statement last week.

A lack of jobs and Americans’ drive to pay down debt and boost savings may remain hurdles for retailers. Company payrolls grew by 64,000 in September, the fewest in three months, and wages stagnated.

Wage Income

“Consumer spending has been inhibited by the painfully slow recovery in the labor market, which has restrained growth in wage income and has raised uncertainty about job security and employment prospects,” Bernanke said today in a speech in Boston.

Bernanke and his central bank colleagues are considering ways they can further stimulate the economy after lowering interest rates almost to zero and purchasing $1.7 trillion of securities.

“There would appear -- all else being equal -- to be a case for further action,” Bernanke said. He said the central bank could expand asset purchases or change the language in its statement, while saying “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.”

November Meeting

He didn’t offer new details on how the Fed would undertake those strategies or give assurances the central bank will act at its Nov. 2-3 meeting.

Stimulus spending to revive the economy and the lingering effects of the recession on tax revenue pushed the government’s budget deficit for fiscal year 2010 to $1.29 trillion, the second-largest on record, the Treasury Department reported today. It was surpassed only by last year’s $1.42 trillion gap.

A report from the Fed Bank of New York showed manufacturing in the region accelerated. Its general economic index rose to 15.7 in October, the highest level in four months and more than twice the median forecast of economists surveyed by Bloomberg. Readings greater than zero signal gains in the so-called Empire State Index covering New York, northern New Jersey and southern Connecticut.