updated 11/30/2006 9:35:07 AM ET 2006-11-30T14:35:07

Shoppers picked up their pace in October after two lackluster months, but the nations’ retailers reported mixed results in November, raising concerns about the all-important holiday shopping season.

Major Market Indices

The Commerce Department said Thursday that consumer spending increased by 0.2 percent in October, the best showing in three months. Spending had fallen by 0.2 percent in September and posted only a slight 0.1 percent rise in August.

However, the nation’s retailers reported a mixed sales performance for last month. Wal-Mart Stores Inc., the nation’s largest retailer, said its same-store sales were down 0.1 percent and predicted that sales would rise in December by no more than a modest 1 percent.

The October spending increase was bolstered by continued solid growth in incomes, which rose by 0.4 percent in October, reflecting solid employment growth that pushed the jobless rate to a five-year low.

In other economic news, the number of Americans filing new claims for unemployment benefits posted an unexpectedly large increase last week, rising by 34,000 to 357,000, the Labor Department reported.

That jump pushed jobless claims to the highest level since October 2005 when the devastating effects of Hurricane Katrina caused layoffs to soar. Ian Shepherdson, chief economist at High Frequency Economics, said it was too soon to say whether the unexpected increase in layoffs indicated a serious weakening in the labor market or was simply an aberration.

The four-week moving average for claims, which is designed to smooth out week-to-week fluctuations, rose by 7,250 to 325,000, the highest level since June 3.

The Federal Reserve is hoping that its two-year campaign to raise interest rates will cool consumer spending and the overall economy enough to keep inflation under control but not do so much damage that it pushes the country into a recession.

On the inflation front, a price gauge linked to consumer spending and closely watched by the Fed posted a 0.2 percent rise in October. That was the same as September, but down from a 0.3 percent jump in August. This price barometer, which excludes food and energy, is up 2.4 percent over the past year, still higher than the Fed’s comfort zone.

The 0.2 percent rise in spending was the best showing since a 0.8 percent jump in July, a month when Americans flocked to auto showrooms to take advantage of attractive sales incentives.

The October spending gain looked even better when the impact of a big drop in gasoline pump prices was removed. Inflation-adjusted spending was up 0.4 percent.

Consumer spending is closely monitored because it accounts for two-thirds of total economic activity. Americans slowed their spending activity sharply in the spring and summer as they struggled to deal with the impacts of soaring gasoline prices, rising interest rates and a cooling housing market.

After starting the year at a torrid rate of 5.6 percent, overall economic growth slowed to 2.6 percent in the April-June period and even further to a pace of just 2.2 percent in the July-September period. However, that 2.2 percent growth rate reported on Wednesday represented a revision from an initial estimate of just 1.6 percent.

That upward revision has bolstered the view that the economy will avoid an outright recession even though the slump in the once-booming housing market is proving to be more serious than economists had anticipated.

Federal Reserve Chairman Ben Bernanke said Tuesday that economic growth, outside of autos and housing, remained “solid.”

The 0.4 percent rise in incomes in October followed gains of 0.5 percent in each of the previous three months. Analysts believe that solid income growth will support spending in the months ahead even as Americans feel less wealthy because the huge run-up in the value of their homes has come to an end.

Disposable incomes, representing everything consumers have to spend or save after paying taxes, rose by 0.3 percent in October and posted a 0.6 percent increase when the effects of inflation were removed.

Even with that gain, the personal savings rate remained in negative territory for the 19th consecutive month. It stood at a negative 0.6 percent in October, slightly better than the negative 0.7 percent of September. That means that Americans were still borrowing or dipping into savings to finance their consumption.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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