Consumers hit retail stores to give economy boost

A shop­per car­ries pur­chases while shop­ping at Dol­phin Mall, in Miami. Amer­i­cans spent more on autos, elec­tron­ics and build­ing sup­plies in Octo­ber, push­ing retail sales up for a fifth straight month. (Asso­ci­ated Press | Lynne Sladky)

MARTIN CRUTSINGER

AP Eco­nom­ics Writer

WASHINGTON — Con­sumers are giv­ing a mod­est lift to the economy.

They spent more on trucks, elec­tron­ics and build­ing sup­plies in Octo­ber to boost retail sales for the fifth straight month.

The gains pro­vide an encour­ag­ing start for the October-December quar­ter. They come just as sep­a­rate reports show that whole­sale prices are flat­ten­ing and U.S. shop­pers are spend­ing more at Wal-Mart, the world’s largest retailer.

Still, con­sumers might not be able to sus­tain their spend­ing growth if unem­ploy­ment remains high and pay raises scant. And Europe may be on the brink of a reces­sion that could fur­ther slow U.S. growth next year.

“The con­sumer has to come through this hol­i­day sea­son if we are going to get back to more decent growth rates, and the early read­ings are those house­holds have hit the stores quite strongly,” said Joel Naroff, chief econ­o­mist at Naroff Eco­nomic Advisors.

Retail sales rose 0.5 per­cent from Sep­tem­ber to Octo­ber, the Com­merce Depart­ment said Tues­day. Healthy auto sales helped. Even with­out autos, sales rose by the most since March.

And exclud­ing autos and sales at gaso­line sta­tions, sales rose 0.7 per­cent, also the biggest increase since March.

Sales of elec­tron­ics, appli­ances, hard­ware and build­ing sup­plies all ben­e­fited from the pickup in spend­ing. Sales also rose at gro­cery stores, bars and restau­rants and health care stores.

A rebound in con­sumer spend­ing was the key rea­son why the econ­omy grew at an annual rate of 2.5 per­cent in the July-September quar­ter. It was the best quar­terly per­for­mance in a year.

Econ­o­mists said the Octo­ber retail sales data sug­gest that the econ­omy is grow­ing at roughly the same pace in the final three months of the year. Con­sumer spend­ing fuels about 70 per­cent of eco­nomic activity.

Stronger growth has helped calm fears that the U.S. econ­omy might be at risk of another recession.

Still, econ­o­mists worry that the spend­ing can’t con­tinue at the same pace. Over the sum­mer, con­sumers spent more while earn­ing less. Many had to dip into their sav­ings to make up the difference.

“Over­all, the econ­omy appears to be grow­ing at a decent clip,” said Paul Dales, a senior U.S. econ­o­mist at Cap­i­tal Economics.

Still, Dales added, “Con­sump­tion can­not grow at a faster rate than incomes indefinitely.”

Many fear Europe’s debt cri­sis is on the verge of trig­ger­ing a reces­sion in the region. The euro­zone econ­omy grew just 0.2 per­cent in the July-September quar­ter, accord­ing to the Euro­pean Union sta­tis­tics office. It was the sec­ond straight quar­ter of pal­try growth.

Most econ­o­mists say it won’t improve in the months ahead. Con­sumers and gov­ern­ments in Europe are expected to spend less because of the debt crisis.

Tuesday’s fig­ures did not include some coun­tries, notably Greece and Italy — two coun­tries that threaten to take down the rest of the region because of their debt crises. Their pre­lim­i­nary fig­ures are due later this month.

One pos­i­tive sign for the U.S. econ­omy: Infla­tion pres­sures are start­ing to ease, largely because energy costs have declined.

U.S. com­pa­nies paid less for whole­sale goods last month for the first time since June. And exclud­ing volatile food and energy costs, so-called “core” whole­sale prices were unchanged.

Lower prices mean con­sumers will have more buy­ing power, poten­tially boost­ing con­sumer spend­ing. The jump in gas and food prices ear­lier this year lim­ited the abil­ity of con­sumers to buy other goods. That slowed the economy.

Auto sales have also rebounded since the Japan earth­quake and tsunami. The 0.4 per­cent rise in Octo­ber fol­lowed a 4.2 per­cent surge in September.

Pur­chases of SUVs and trucks off­set a loss in momen­tum for car sales. The nat­ural dis­as­ters had dis­rupted dis­tri­b­u­tion of parts to U.S. fac­to­ries and made it harder to obtain some pop­u­lar models.

In the Miami area, auto sales were decent in Octo­ber and picked up in the first half of Novem­ber, said Ed Williamson, part owner of two Buick-Cadillac-GMC dealerships.

Peo­ple are par­tic­u­lar about prices and want incen­tives, such as low-cost leases, Williamson said. Still, he’s opti­mistic that the slow auto sales recov­ery in South Florida will con­tinue into next year.

“I think things started to get bet­ter down here in the sum­mer,” Williamson said. “We’ve just seen pretty good show­room traf­fic all along. But at the moment we’re see­ing the most show­room traf­fic that we’ve seen all year in the first two weeks of November.”

Depart­ment stores and spe­cialty cloth­ing shops didn’t fare as well in October.

Megan Dunn, a grad stu­dent from Philadel­phia, said she’s lim­ited her­self to buy­ing clothes on clear­ance. But she still goes out for din­ner some­times because she enjoys the time with friends and doesn’t mind spend­ing on small treats.

“Eat­ing out is always going to be expen­sive,” Dunn said. “But it’s a social experience.”

Gen­eral mer­chan­dise stores, which include Wal-Mart and Tar­get, reported flat sales in Octo­ber after a mod­est 0.6 per­cent increase in September.

But Wal-Mart Stores Inc., the world’s largest retailer, reported its first quar­terly rev­enue gain in more than two years at its branded U.S. stores. The retail giant says it did so by focus­ing on low pric­ing and by stock­ing pop­u­lar brands and products.

The gain is a good sign for the retail indus­try and the U.S. econ­omy as a whole. Wal-Mart’s core low-income shop­pers have been par­tic­u­larly hard hit by unem­ploy­ment, which has been near 9 per­cent for more than two years.

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