Sales Gain Shows Resilient Consumer Before Holiday: Economy

Retail sales climbed in October by the most in three months, indicating the government shutdown did little to unnerve Americans before the holiday-shopping season.

The 0.4 percent increase exceeded the median forecast in a Bloomberg survey after no change in September, Commerce Department figures showed today in Washington. Consumers not only snapped up big-ticket goods such as cars and furniture, they dined out, bought clothing and took home more electronics.

The figures boost the holiday-sales outlook for retailers such as Macy’s Inc. and shows the consumer spending that accounts for almost 70 percent of the economy is picking up from a third-quarter slowdown. Cheaper gasoline is stretching Americans’ paychecks at the same time higher stock prices and home values drive gains in household wealth.

“Maybe the rhetoric was just a little bit overblown in terms of the magnitude of the economic impact behind the partial government shutdown,” said Michael Brown, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. The firm is the best forecaster of retail sales during the last two years, according to data compiled by Bloomberg. “As we get ready to go into the holiday shopping season, this is welcome news.”

Gasoline prices near the lowest levels in more than two years helped drive down the cost of living in October, a report from the Labor Department showed today. The consumer-price index dropped 0.1 percent, the first decline in six months, as costs fell for energy, apparel and new cars.

Hourly Earnings

The decrease helped boost purchasing power, as hourly earnings adjusted for inflation rose 1.3 percent in October from a year ago, the biggest 12-month gain in four years, another Labor Department report showed.

“Consumers are taking the savings from low gasoline prices and spending them elsewhere,” said Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York. “The holiday season should be fairly decent. That should help fourth-quarter spending and GDP growth.”

Some firms raised their forecasts after the retail sales report. Goldman Sachs Group Inc. economists boosted their fourth-quarter growth tracking estimate to 1.6 percent from 1.5 percent. Morgan Stanley increased its GDP estimate up to 1.4 percent from 1 percent.

While Americans were busy shopping at retail establishments last month, fewer were buying previously owned homes as limited supply and higher mortgage rates restrained momentum in the housing market, another report today showed. Sales of existing properties dropped 3.2 percent in October to a 5.12 million annualized rate, the lowest level since June, according to figures from the National Association of Realtors.

Housing Inventory

“The housing data has downshifted in recent months, presumably because of the pop in mortgage rates beginning in the spring,” Thomas Simons, an economist at Jefferies LLC in New York, said in an e-mailed note. “Low inventories may also be impeding sales.”

Stocks declined, sending the Standard & Poor’s 500 Index lower for a third day, after minutes from the Federal Reserve’s October meeting signaled the central bank may reduce bond purchases in coming months. The S&P 500 dropped 0.4 percent to 1,781.37 at the close in New York.

Minutes of the Fed’s Oct. 29-30 meeting showed policy makers “generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.”

Broad Gains

The retail figures showed nine of 13 major merchant categories showed increases last month, led by the gains at auto dealers, department stores, clothing outlets and electronics establishments.

The median forecast of 86 economists surveyed by Bloomberg called for a 0.1 percent October advance. Estimates ranged from a decline of 0.3 percent to a gain of 0.7 percent. The reading for September was revised from an initially reported 0.1 percent decrease.

Sales at automobile dealers advanced 1.3 percent after falling 1.2 percent in September, today’s report showed.

Industry figures, which are the ones used to calculate economic growth, showed cars sold at a 15.15 million pace in October, down from 15.21 in September, according to data from Ward’s Automotive Group. Automakers remain on track to have their best year since 2007 even as demand has cooled from an almost six-year high 16-million pace in August.

Gasoline Prices

While cheaper gasoline may have bolstered Americans’ willingness to spend, the lower cost for fuel hurt receipts at filling stations, which declined 0.6 percent in October, today’s figures showed. The Commerce Department’s retail sales data aren’t adjusted for changes in prices.

Sales excluding gasoline climbed 0.5 percent, the most in four months.

A gallon of regular gasoline at the pump averaged $3.34 in October, down from $3.51 the previous month, according to AAA, the biggest U.S. auto group. It dropped to $3.18 on November 11, the lowest level since February 2011.

The figures used to calculate GDP, which exclude categories such as food services, auto dealers, home-improvement stores and service stations increased 0.4 percent in October after rising 0.3 percent the prior month.

Household Spending

Household spending will grow at a 2.1 percent annualized rate in the last three months of the year, according to the median forecast of economists surveyed by Bloomberg this month. It expanded at a 1.5 percent pace in the third quarter, the weakest performance in two years.

Cincinnati-based Macy’s, the second-largest U.S. department-store company, this month reported fiscal third-quarter profit rose 22 percent from the year before.

Revenue was particularly strong in October, and the company is “entering the fourth quarter with confidence,” Chief Executive Officer Terry Lundgren said in a Nov. 13 statement.

Sales in November and December account for 20 percent to 40 percent of U.S. retailers’ annual revenue and 20 percent of their profit, according to the National Retail Federation, a Washington-based trade group.

Purchases at department stores advanced in October by the most since July 2012, today’s figures showed. Purchases at clothing outlets were the strongest in six months, while sporting goods, book and music stores had their best showing since March 2012.

Sales at electronics and appliance stores were the strongest in six months. Purchases of electronics probably got a boost from the Sept. 20 release of Apple Inc.’s two new iPhones models. The company sold a record 9 million iPhones in the weekend debut that included China among overseas markets.

Today’s figures also showed furniture sales jumped 1 percent in October after climbing 0.7 percent.

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