U.S. Retail Sales Post Biggest Gain in 7 Months in October

The New York Times
By CHRISTINE HAUSER
Published: November 15, 2010

Sales at the nation’s retailers and food service establishments rose in October compared with the previous month, according to government figures released on Monday, providing a glimmer of hope that consumer spending was set to improve in the fourth quarter.

The Commerce Department statistics, which also showed an improvement over October 2009, sales, were better than what economists had forecast, and were based on upward revisions in similar sales in September and August. Economists hope they indicate that consumer spending is gaining strength, although many households are still de-leveraging and dealing with uncertainties in employment.
With an expected slow recovery in the job market and therefore small gains in wages, growth in consumer spending will be “modest at best,” said Joshua Shapiro, the chief United States economist for MFR Inc.
The Commerce Department said retail sales in October were up 1.2 percent from September, a jump from economists’ predictions of 0.7 percent. The October sales were also 7.3 percent higher compared with October last year. The seasonally adjusted figure represents $373.1 billion in sales.
The rise in the October numbers was primarily attributed to a 14 percent gain in motor vehicles and parts sales, and in sales at gasoline stations. Still, the statistics, which were adjusted for seasonal and holiday variations, show that when those components are removed the retail sales were also better than expected, registering a 0.4 percent rise.
“With autos showing life in September and October, the consumer is doing somewhat better than we would have expected,” said Mr. Shapiro in a research note.
Clothing sales were up and building materials sales were also stronger, the Commerce Department said.
Consumer spending accounts for about 70 percent of the gross domestic product but a considerable portion of that spending is related to housing, medical care and food necessities.
There were declines in sales of furniture, appliances and department store sales, suggesting that some consumers were still hesitating before buying discretionary items. The figures are advance estimates, and subject to revisions.
The lower department store and electronics sales could reflect a decline in prices as stores try to attract consumers with discounts early in the holiday season, said Yelena Shulyatyeva, a United States economist with BNP Paribas.
Dan Greenhaus, the chief economic strategist for Miller Tabak & Company, said that based on the figures, it was likely that consumption in the fourth quarter could be revised upward, or up to 2.5 percent for fourth quarter GDP. But that is still well below what would be needed for GDP to bring down the unemployment rate of 9.6 percent.
“Generally speaking the report is quite good,” Mr. Greenhaus said. “It is coincident with stable levels of spending, although levels that remain well below that which would be needed to drive significant GDP growth.”
Consumer spending and employment are two of the closely watched sectors that economists use to gauge the pace of the economic recovery. Manufacturing has also been one of the key sectors of the economy, and generally thought to be a bright spot in hiring.
On Monday, the Federal Reserve provided a snapshot of regional New York manufacturing that showed November was considerable weaker than expected, with a decline of 11.14 compared with an expected reading of 15. New orders fell by over 37 points and the numbers of employees also fell, the survey said.