U.S. consumers shrugged off record oil prices to keep spending at the start of the fourth quarter, according to data released Friday -- an upbeat sign for growth that may presage another Federal Reserve rate hike in December.
The Commerce Department said U.S. retail sales rose 0.2% as expected last month, but stripping out weaker car sales the underlying message from the consumer was strong.
Separately, a solid advance in the University of Michigan’s November consumer survey to 95.5 from 91.7 signals that the mood of shoppers may have brightened now that uncertainty over the presidential election has been lifted.
In other data, the Commerce Department said business inventories rose only 0.1% in September, below forecasts of 0.5%, as retailers emptied stocks at a rapid pace.
But economists concentrate on retail sales as the dominant component in consumer spending, which accounts for two-thirds of U.S. economic output, and found the evidence encouraging.
“Retail sales were much better than expected,” said David Greenlaw, an economist at Morgan Stanley, adding that the firm had lifted its estimate for fourth-quarter gross domestic product growth to an annual rate of 3.9% from 3.4% amid broader evidence of rising demand.
“There appears to be pretty solid underlying momentum to the economy, and if that continues, the Fed will stay on its [interest rate] tightening course,” he said.
Financial markets increasingly believe the Fed will lift its benchmark overnight federal funds rate by a quarter percentage point to 2.25% when it meets Dec. 14. This would mark the fifth rate hike since it began increasing borrowing costs from an ultra-low level of 1% in June.
Wall Street had predicted retail sales to advance slightly after September’s car-fueled increase of 1.6%.
Excluding auto sales, which can swing sharply from month to month, retail sales were up 0.9%, compared with forecasts for a 0.5% gain and a 0.8% advance in September.
“Consumer spending is quite solid, and with jobs possibly being created again, we just might have a decent holiday shopping season,” said Joel Naroff at Naroff Economic Advisors, referring to the net 337,000 U.S. jobs created in October.
Sales of motor vehicles and parts declined 2.2%, a performance that had been anticipated after September’s strong incentive-induced 4.3% surge as dealers cut prices to boost end-of-season sales.