Created on Wednesday, 20 November 2013 Written by MARTIN CRUTSINGER, AP Economics Writer
WASHINGTON (AP) — Consumers shrugged off the 16-day partial government shutdown and spent more on autos, clothing and furniture in October, boosting U.S. retail sales by the most in four months.
Sales rose 0.4 percent, up from a flat reading in September, the Commerce Department said Wednesday. Overall sales were slightly held back by a steep drop in gasoline prices. Excluding sales at gas stations, retail spending rose an even stronger 0.5 percent.
Core sales, a category that excludes volatile spending on autos, building supplies and gas, also rose 0.5 percent, up from a 0.3 percent gain in September.
The retail sales gain indicates that consumers stepped up spending at the start of the October-December quarter. Their spending accounts for 70 percent of economic activity.
Economists were encouraged by the solid October gain.
"This release provides yet more evidence that, despite the shutdown, the economy is gaining momentum," said Paul Dales, senior U.S. economist at Capital Economics.
Dales said a strong start to the October-December quarter could mean that consumer spending will grow at an annual rate of 2 percent to 2.5 percent this quarter. That would mark a sharp improvement from the 1.5 percent annual growth in consumer spending in the July-September quarter.
Economists say they think cheaper gas will help boost sales during the crucial holiday shopping season. Gas prices have fallen sharply since Labor Day and now are around $3.21, the lowest level in nearly two years.
A sharp drop in auto sales caused largely by a calendar quirk had dampened retail sales in September. Labor Day weekend auto sales were counted in August. But in October, auto sales 1.3 percent, reversing September's 1.2 percent decline.
In October, sales at department stores rose 0.5 percent after having fallen 0.6 percent in September. There were also solid sales gains at furniture stores, electronics and appliance stores and specialty clothing stores.
In addition to the drop at gas stations, sales at building supply stores fell 1.9 percent in October.
Growth in consumer spending slowed from July through September and economists have been concerned that spending may remain lackluster given weak income growth and the lingering impact of higher federal taxes at the start of the year.
Unemployment remains still high at 7.3 percent, and those Americans who have jobs are not seeing much in the way of pay increases. That's contributed to their more cautious mood.
But in one encouraging sign, hiring has picked up in recent months. The economy created 204,000 jobs last month, many more than expected. Employers have added an average of 202,000 jobs per month from August through October. That's up sharply from an average of 146,000 in May through July.
The overall economy grew at an annual rate of 2.8 percent in the July-September quarter, faster than expected, and up from 2.5 percent growth in the April-June quarter. But much of the growth came from an increase in business stockpiling. Without a corresponding increase in spending, many economists think companies will cut back on restocking in the October-December quarter, which would slow economic growth.
Most analysts have said they think the economy is growing at a weak annual rate below 2 percent in the current quarter. But some say the solid October retail sales may cause them to boost their estimates for the fourth quarter. Dales said he thinks the economy will grow at an annual rate between 2 percent and 2.5 percent this quarter.