Jump in retail sales allays recession fears

Retail sales posted a stronger-than-expected gain in September, easing fears about a possible recession, and a big surge in gasoline costs pushed wholesale inflation higher.

The Commerce Department reported Friday that retail sales increased 0.6% last month, double what had been expected, as a big increase in auto sales helped offset weak demand for clothing.

The Labor Department said wholesale inflation jumped 1.1% in September, the biggest increase in seven months, as gasoline costs shot up by 8.4%, the biggest gain since March.

However, core inflation, which excludes energy and food, remained well contained, rising just 0.1%.

With consumer spending, the economy’s main growth engine, continuing at a solid rate, some analysts said the chance of another interest rate cut by the Federal Reserve when it meets Oct. 30 and 31 was growing less likely.

But others said an October rate cut was still possible because they viewed Friday’s data as sending a mixed message about the strength of the economy and the threat from inflation.

The 0.6% jump in retail sales was heavily influenced by special factors such as the rise in gasoline costs, which boosted sales at service stations, and a 1.2% jump in auto sales.

The report showed that sales at department and clothing stores fell during the month as warmer-than-normal weather kept consumers from buying fall clothes. That weakness was more in line with a report Thursday from the nation’s big chain stores, which reported disappointing sales in September.

Another report Friday showed that consumer confidence, as measured by a University of Michigan survey, dropped to a reading of 82 in early October -- the lowest level in more than a year.

Even with the rebound in the stock market after big declines caused by credit-market turbulence in August, analysts said, consumers remain cautious given various adverse forces such as rising energy costs and a steep downturn in housing.

That caution is also affecting businesses. The Commerce Department said companies added to their inventory levels by a tiny 0.1% in August, much lower than expected, as businesses worried about increasing stockpiles until they got a better read on economic growth.

“Consumers are likely to become increasingly cautious going forward,” said Mark Zandi, chief economist at Moody’s Economy.com. “The housing downturn is intensifying with falling home values in much of the country, the job market is softer and gasoline prices remain high.”

Zandi said he expected the economy to grow at a rate of about 3.3% in the just-completed July-to-September quarter.