Declining Prices at Pump Boost Shoppers’ Mood

Falling prices at gasoline pumps spurred consumers in September and their enthusiasm has firmed this month, with the freed-up money being spent elsewhere, reports showed on Friday.

Overall retail sales posted a fall of 0.4% in September, the Commerce Department said, but when a record 9.3% drop in gasoline sales was stripped out, they showed a healthy rise of 0.6%, helped by strong clothing and department store purchases.

Meanwhile, the University of Michigan said its index that gauges consumer sentiment jumped to 92.3 in October, higher than the reading of 86.5 economists had predicted in a Reuters poll and up from September’s result.

“Happy days are here again,” said Patrick Fearon, senior economist at A.G. Edwards & Sons in St. Louis. “Consumers’ improved mood was largely tied to falling gasoline prices.”

Analysts polled by Reuters were expecting a 0.2% rise in overall retail sales.

The strength of Friday’s figures was consistent with earlier reports from the retail sector that showed growth in consumer spending after a difficult summer when gasoline prices were hovering near record highs.

Average gasoline prices slid from a peak of $2.92 a gallon in mid-August to $2.38 a gallon in late September, according to the Energy Department.

SpendingPulse, a retail data service of MasterCard Advisors, an arm of MasterCard Worldwide, said Monday that Americans felt freer to splurge with the help of lower gasoline prices and a soaring stock market.

In dollar terms, it said September seasonally adjusted sales, excluding autos, reached $287.7 billion, up 5.3% from a year earlier.

This followed reports last week from department stores and clothing retailers, which posted surprisingly strong September sales.

Shoppers flocked to stores run by Limited Brands Inc., J.C. Penney Co., Target Corp. and Nordstrom Inc. in a key transition month as retailers wrapped up back-to-school sales and prepared for the vital holiday shopping season.

“If September’s sales are any indication, shoppers appear confident heading into the holiday season,” the National Retail Federation said in a statement after the retail sales report.

“As gas prices dipped last month, consumers had more disposable income to spend on other items, especially back-to-school necessities like clothing and sporting goods.”

The University of Michigan data also showed that inflation expectations for the next year were lower, although they were slightly higher for the next five years.

A report from the Labor Department showed U.S. import prices dropped by a more-than-expected 2.1% in September, the largest decline in almost 3 1/2 years, largely because of the decrease in petroleum prices.

It was the first decline in overall import prices since March and was led by a 10.3% drop in petroleum prices. The cost of nonpetroleum imports inched up 0.1%.