Retail sales performed far better than expected in October as consumers took encouragement from falling gasoline prices to head back to the shopping malls.
The Commerce Department reported that overall sales dipped a slight 0.1 percent, but that was significantly better than the 0.7 percent decline economists had been expecting. The weakness came from a big 3.6 percent drop in auto sales, which have weakened with the removal of attractive discounts automakers had used during the summer.
Excluding autos, retail sales rose a solid 0.9 percent last month. The strength in sales last month was led by big gains at specialty clothing stores and department stores, lifting the outlook for the upcoming holiday sales season.
In other economic news, the Labor department reported that wholesale prices rose by 0.7 percent in October after an even sharper 1.9 percent increase in September.
However, excluding food and energy costs, so-called core inflation fell by 0.3 percent in October, the biggest one-month decline in more than two years.
Also working to hold back retail sales in October was a 0.8 percent decline in sales at gasoline stations, a drop that reflected a big retreat in pump prices. Excluding autos and gasoline, retail sales rose a solid 1.1 percent in October, the best showing in this category since last April.
Economists closely watch the performance of consumer spending since it accounts for two-thirds of total economic activity.
Economists believe that the impact of hurricanes Katrina and Rita, which caused energy prices to hit record levels, will curtail economic activity in the second half of this year. However, they believe the impact will be temporary, given the fact that energy prices have fallen significantly since early September.
The report on retail sales showed that sales at clothing specialty stores rose by a solid 3.1 percent in October after having declined by 0.3 percent in September. Sales at department stores were up a sold 1.5 percent in October after suffering a 0.6 percent decline in September.
Consumer confidence had fallen sharply in September under the impact of a surge in energy prices which saw the nationwide average for gasoline briefly rise above $3 per barrel right after Katrina struck and caused widespread shutdowns of oil refineries along the Gulf Coast.
The 0.7 percent jump in wholesale prices reflected a 4.1 percent rise in energy prices, which came on top of a 7.1 percent jump in September. Gasoline prices fell by 3.3 percent last month but residential natural gas was up 12.7 percent and residential electric power rose by a record 2.9 percent. Many utilities use natural gas to generate electricity.
Economists are concerned that Americans’ heating bills could soar this winter because of rising natural gas prices.
Food prices fell 0.1 percent last month, a big moderation after a 1.4 percent jump in September. The decrease was led by a 25.2 percent plunge in egg prices.