Economic Watch: Retail Sales Pop, Consumer Prices Drop
November 20, 2013
Despite a partial government shut down last month, resulting in hundreds of thousands of people being out of work and with no paychecks, retail sales in the U.S. unexpectedly increased.
The 0.4% jump in October from the month before, according to a new report from the U.S. Commerce Department, comes as it also upwardly revised September’s performance from a first reported 0.1% hike to a 0.5% gain.
One poll of economists was predicting a consensus October increase of just 0.1%.
The October level is also 3.9% greater than from the same time a year ago.
The gain was led by a strong increase in auto sales. Retails sales, excluding autos, increased 0.2%.
“Consumers appear to be willing to spend beyond what the tepid job creation and minimal income growth over the past several quarters would suggest,” said Lindsey Piegza, managing director and chief economist with the investment firm Sterne Agee. “In part, consumers are feeling wealthier thanks to record gains in equities coupled with falling prices at the pump and a slew of better-than-expected data reports which at least on the headline suggest things are improving.”
She said going forward, sustained job creation and bigger income checks are needed to maintain heightened spending patterns, but at least for the moment short-term optimism may result in more than coal for retailers this holiday season.
Meantime, sales at the wholesale level increased 0.6% in October, beating economists’ expectations and the fourth increase out of the last five months
Another part of the reason for the increase in retail sales last month is that consumer prices dipped 0.1% due to falling gasoline prices, while over the past year inflation is up just 1%.
The U.S. Commerce Department, in a separate report, said the unexpected decline in consumer prices last month follows a 0.2% gain in September.
Excluding the volatile energy and food sectors, consumer prices rose 0.1% in October, the same as the previous two months, while over the prior 12 months, the “core” price index was up 1.7%, below the Federal Reserve's annual inflation target of 2%.
Housing services costs rose 0.1% in October while energy prices overall fell 1.7%, the largest monthly decline since April. Year-over-year energy prices are down 4.8%. Excluding energy, the Consumer Price Index rose 0.1% in October. Excluding food, the CPI fell 0.1% in October.
“As [Federal Reserve] Vice Chairman Janet Yellen emphasized in her testimony last week before Congress, with the unemployment rate stubbornly above 7% and inflation well below the Fed's threshold, the Fed will retain their commitment to accommodation today in order to propel the economy back to normal in the future,” said Piegza. “This report coupled with Chairman Bernanke's comments Tuesday night regarding the disappointing nature of the latest employment reports, all but assures that tapering is now a 2014 or beyond event.”
Finally, another separate report shows sales of existing homes in the U.S. fell in October by 3.2% from the month before.
The National Association of Realtors reports this puts the annual level at 5.12 million, the lowest level since June. Despite the drop sales were 6% higher in October compared to the same month in 2012. Sales have remained above year-ago levels for the past 28 months.
Lawrence Yun, NAR chief economist, said a flattening trend is expected. “The erosion in buying power is dampening home sales,” he said. “Moreover, low inventory is holding back sales while at the same time pushing up home prices in most of the country. More new home construction is needed to help relieve the inventory pressure and moderate price gains.”
The national median existing-home price for all housing types was $199,500 in October, up 12.8% from October 2012, which is the 11th consecutive month of double-digit year-over-year increases.