U.S. Third-Quarter Growth May Reach 6%

U.S. shoppers took a break in September as retail sales dipped for the first time since April, the government said Wednesday. But upward revisions to July and August sales data mean third-quarter economic growth could be the strongest in several years, analysts said.

A separate report released Wednesday, the Federal Reserve Board’s anecdotal snapshot of the economy known as the “beige book,” found that the pace of economic expansion had picked up since early September. In the West, the Fed found that retailing and manufacturing continued to strengthen.

Economists closely watch retail sales because they make up a substantial portion of overall consumer spending, which accounts for about two-thirds of U.S. economic activity. With July sales up a revised 1.4% and August sales posting a revised gain of 1.2%, many analysts now believe economic growth took a sharp upturn in the third quarter.

Estimates of U.S. economic growth for the quarter now hover around 6%. If those projections pan out, it will be the strongest since the fourth quarter of 1999, when the economy grew at a 7.1% annual rate as businesses invested heavily before the year 2000 date changeover.

“Consumer spending is the biggest piece of GDP, and retail sales suggest we’re going to see a gangbusters third-quarter GDP figure,” said Ken Mayland, president of ClearView Economics in Pepper Pike, Ohio.

Though the Commerce Department will not release its estimate of third-quarter economic growth until Oct. 30, analysts were quick to look past September’s decline in sales and jack up their growth forecasts.

“The upward revisions dominate this report,” said Michael Englund, chief economist with MMS International. Englund said he was sticking with his projection of 6.5% growth, but he said it was possible it could end up even higher, at 7% or 8%.

Even though overall demand softened in September, sales excluding autos were up 0.3%.

Auto sales slid 1.6%, their biggest drop since February. But other sectors, including building materials and clothing, took up the slack, posting strong gains.

Analysts said the outlook for consumer spending remained strong for at least a few months, as the effects of income tax cuts and child tax credit checks sent to millions of families in July and August made their way through the economy.

With demand remaining strong, Englund said it was “pretty implausible” that employment wouldn’t eventually pick up soon. “At some point, firms will have to start rehiring.”