Retail Sales Up on Eve of Key Holiday Season
Retail sales surged unexpectedly in October as Americans opened their wallets to buy more automobiles, furniture, clothes and other goods, the government reported Friday, raising hopes among analysts that the economy may be picking up steam on the eve of the critical holiday season.
Last month’s 0.9% increase was the fourth consecutive month of rising retail sales, the Commerce Department said, and previously reported figures for September and October were revised upward to show healthier gains. Sales increased at a relatively robust annual rate of 3.8% during the third quarter.
In another bullish development, three widely followed indexes of consumer confidence all posted significant gains. The University of Michigan’s index of consumer confidence soared to 83.6 in its initial November tally from 73.3 in October, the first increase following a four-month decline. On average, sentiment hadn’t changed by more than 2.2 points all year.
Another University of Michigan index, which gauges current economic conditions and is believed to be the most accurate of the three measures, increased to 96.7 from 82.5 in October. The university’s preliminary index of consumer expectations increased to 75.1 from 67.5.
Also Friday, a separate government report showed that consumer prices jumped 0.4% in October, about twice as much as expected, but economists dismissed the price spike as a statistical aberration that does not signal a significant increase in inflationary pressures.
Private-sector economists, who had anticipated a more modest increase in retail sales, said October’s healthy receipts reinforce other recent signals that the nation may finally be shaking loose from the protracted slump that undermined confidence in the Bush Administration.
“The results are very encouraging. . . . There’s a whole range of statistics that show that the pulse beat of the economy is a little faster,” said Allen Sinai, chief economist at the Boston Co. Economic Advisors.
On Thursday, the Labor Department reported that the number of Americans filing new claims for unemployment insurance fell to its lowest level since Aug. 4, 1990, a period that coincides roughly with the beginning of the recession.
The latest readings follow several months of generally disappointing reports that raised questions about the ability of the economy to mount a sustained recovery from one of the longest slumps on record. Although the economy has been expanding since early 1991, the rate of growth has been anemic and unemployment remains stubbornly high.
The sluggish economy was the overriding issue in this year’s presidential race, and President-elect Bill Clinton has promised to put forward a recovery program shortly after assuming office in January.
While economists reacted favorably to the upbeat indicators reported Friday, some tempered their assessments by noting that the pick-up may be a short-term response to the prospect of a new Administration and not necessarily a harbinger of sustained long-term growth.
“It’s good to see, but I’m wondering if it has to do with the Clinton effect,” said Michael Penzer, an economist at the Bank of America in San Francisco. Penzer said last year’s Persian Gulf War victory triggered a similar bounce in consumer sentiment, but confidence soon began to decline again as the euphoria wore off.
Although Penzer said he fears that industrial production figures to be issued Monday will be disappointingly weak, he expressed confidence that gradually improving consumer spending will produce economic growth over the long term.
Clinton’s economic recovery program will take time to pass through Congress and begin producing results, but ultimately it should begin to have the desired stimulative effect, Penzer said. “You won’t see any of the good stuff enter the economy until the third quarter of next year,” he predicted.
Guilio Martini, an economist at Sanford C. Bernstein & Co., said that increased consumer spending should cause factory output to increase significantly by the end of the year, a trend that will lead to higher levels of employment and economic growth.
Sales of durable goods increased 1.7%, reflecting boosts in sales of automobiles and large appliances. Auto dealers posted a 2.9% advance in October, an improvement over the 1.1% gain in September. Stores selling household furnishings registered a 2% jump in sales after a 0.3% gain in September.
Sales of non-durable goods, such as food and fuel, rose 0.4%, doubling the 0.2% increase the previous month.
The 0.4% increase in the Consumer Price Index, the largest since last March, was led by higher airline prices, which had been held down over the summer by airline ticket wars. Fares leaped 7.8% in October, the largest one-month gain on record.
Energy prices shot up by 0.5%, the biggest gain since a 2% rise in June. Gasoline prices led the rise in energy prices, increasing 0.6%, after falling over the two previous months. Outside the volatile food and energy categories, the inflation rate registered an increase of 0.5%. In another report, the Labor Department said that Americans’ average weekly earnings, after adjusting for inflation, rose 0.4% in October, reversing a 1.4% drop in the previous month. But Penzer dismissed the figure as an aberration, given the still relatively high level of unemployment.
A separate survey issued by the National Assn. of Realtors showed significant declines in home prices in the Northeast and California during July and September. The survey said that national home sales increased only 1.6%, the worst showing since the first quarter of 1991.
Meanwhile, the Federal Home Loan Mortgage Corp. reported that fixed-rate mortgages rose to 8.32%, up from 8.29% the week before, the highest level since late June.
The Latest Economic Signals
Retail sales climbed 0.9% in October, their best showing in three months, the government reported. Inflation was up last month as well. The summary:
CONSUMER PRICES: Up 0.4%, biggest jump since last March. It reflected increases in airline fares, energy prices, rental costs, tuition and tobacco prices. Airline prices, held down by a summer fare war, jumped 7.8% in October. Food prices moderated.
RETAIL SALES: Up 0.9%. While economists were encouraged, they cautioned against over-reacting to the report. Still, “The fact that people were willing to commit to high-ticket items like cars and furniture suggests that confidence is coming back,” said one.
Source: Times wire services
