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Consumers hit retail stores to give economy boost

By Martin Crutsinger

Associated Press

Published: Tuesday, Nov. 15 2011 2:01 p.m. MST

This Nov. 10, 2011 photo shows new cars parked at the Galpin Motors of North Hills car dealership, the largest Ford retailer in the U.S., in Los Angeles.

Associated Press

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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.

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 barely grew in the July-September quarter, according to the European Union statistics office. It was the second straight quarter of paltry growth.

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

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. A jump in gas and food prices earlier this year had slowed consumption over other goods.

October retail sales were 7.2 percent higher than the same month last year. Internet and catalog sales have risen more than 11 percent since then. Consumers also spent more on sporting goods and at hobby and book stores.

Auto sales have also rebounded since the Japan earthquake and tsunami. The 0.4 percent rise in October from September followed a 4.2 percent surge in the previous month. Sales have increased 7 percent from the same month last year.

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