US retail sales rise, consumer sentiment slips

Consumer sentiment, however, unexpectedly slipped in early October as worries about declining incomes drove a measure of expectations to the lowest level in more than 30 years.

Retail sales rose 1.1 percent in September, boosted by strong auto purchases, the Commerce Department said on Friday. The gain was stronger than economists had expected and sales for August and July were revised higher as well.

Consumer spending accounts for about two thirds of U.S. economic activity, and the report suggested the economy had more vigor over the past three months than previously believed, although it was not yet out of the woods.

The data “reflects an economy that is still struggling but won’t fall back into recession,” said Omer Esiner, an analyst at Commonwealth Foreign Exchange.

A separate report on business inventories also suggested economists would likely raise forecasts for economic growth in the quarter following a weak first half of the year.

Inventories, which are a key component of gross domestic product, rose slightly more than expected in August and the government said July inventories gained more than initially estimated.

“It looks like third-quarter GDP is going to be better than the first and second quarter combined,” said John Canally, an investment strategist and economist for LPL Financial in Boston. The economy grew at less than a 1 percent annual rate over the first half of the year.

Separately, the Thomson Reuters/University of Michigan’s preliminary reading on consumer sentiment for October sagged to 57.5 from 59.4, with an expectations reading dropping to 47.0.

Even though the U.S. recovery is strengthening, analysts warn that the economy still faces heightened recession risks. A slowdown in Europe, where debt-laden countries are enacting austerity measures, is expected to weigh heavily.

Prices for U.S. government debt fell following the retail data. Stocks rose on optimism the euro zone will continue to make progress on a solution to its debt crisis.

CONSUMER RESOLVE

Consumer confidence plunged over the summer as a bruising battle over the U.S. budget slammed stock prices and pushed the nation to the brink of default.

But Friday’s retail report shows the crisis of confidence might not necessarily keep Americans from spending.

“Obviously consumers are still willing to go out and shop,” said Gary Thayer, a strategist at Wells Fargo Advisors in St. Louis, Missouri.

“If the economy takes a clear turn for the worse we would expect sales to suffer, but at least this time the shock to confidence has not derailed consumer spending.”

Sales of motor vehicles and parts rose 3.6 percent last month, the biggest gain since March 2010.

The U.S. economy was hit by a spike in gasoline prices early in the year and a March earthquake catastrophe in Japan that clogged up global supply conduits, hurting auto output and sales.

While autos sales are now bouncing back, even excluding autos, retail sales increased 0.6 percent in September, above forecasts for a 0.3 percent gain.

Stripping out sales of gasoline, autos and building materials, so-called core retail sales — a figure that correspondents most closely to the consumer spending component of GDP — rose 0.6 percent in September.

A separate report, showed U.S. import prices unexpectedly rose in September, posting their largest gain in five months on higher fuel and food costs and pointing to some build-up in imported inflation pressure.

The U.S. Federal Reserve has been more concerned about the tepid pace of the economic recovery than inflation pressures, and has said it stands ready to help the economy more if needed. It has already cut overnight lending rates to near zero and pumped about $2.3 trillion into the banking system.