The Petalumahomes.com Realty WebLog

Retail sales in the U.S. blew past economists’ forecasts last month, reducing concerns that a housing-fueled consumer slowdown might drag the economy into recession.  The 0.6 percent increase was double the previous month, the Commerce Department said today in Washington, and three times the size predicted by analysts in a Bloomberg News survey.  Separately, the Labor Department said core producer prices, which exclude food and energy, rose less than anticipated.

The retail report spurred investors to pare bets that the Federal Reserve will continue cutting interest rates to keep the economy growing.  “The pessimism that’s been so widely spread about collateral damage from housing hasn’t been realized,” said Richard DeKaser, chief economist at National City Corp. in Cleveland, Ohio.  “The downside risks so feared a month ago have diminished.”  Bonds recouped some of their losses after the Reuters/University of Michigan preliminary index of consumer sentiment fell to 82.0 from 83.4 in September. The gauge compares with an average 89.6 in the first half of the year.

“It matters more what consumers do than what they say,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist at Morgan Stanley’s Global Wealth Management Group.  “The decline in confidence is not spilling over into a significant retrenchment in spending.”  Purchases excluding automobiles rose 0.4 percent, compared with a decline of 0.4 percent in August.

Wholesale Prices

The 0.1 percent increase in core wholesale prices eased concern that rising fuel and food costs would filter through the economy.  Overall prices increased 1.1 percent as oil costs climbed.  The yield on the benchmark 10-year Treasury was 4.67 percent at 1:36 p.m. in New York.  Earlier, the yield increased as high as 4.69 percent in the minutes after the retail figures were released.  Inventories at U.S. businesses rose a less-than-forecast 0.1 in August, a separate report from the Commerce Department also showed.  Economists said companies are holding back on production and spending as they gauge the effect on demand from the deepening housing slump.  Today’s retail sales report showed purchases at automobile dealerships and parts stores rose 1.2 percent after climbing 3.3 percent in August.

Electronics, Groceries

Sales at electronics and appliance stores rose 0.9 percent, and purchases at food and beverage merchants increased 0.8 percent.  Americans also spent more to fill up their gasoline tanks.  Filling station sales increased 2 percent in September after dropping 2.6 percent in August.  The report also reflected the effects of the decline in the housing market and the weakness reported yesterday in sales at chain stores.  Furniture sales dropped 0.6 percent and building materials gained just 0.1 percent.  Clothing weakened 0.4 percent and purchases at department stores fell 0.5 percent.

Yesterday’s chain-store figures account for about 17 percent of total retail sales, which in turn make up almost half of all consumer spending.  Wal-Mart, the world’s largest retailer, posted a 1.4 percent gain in September same-store sales, at the lower end of its forecast.  Company officials cited softer demand for home goods and said consumers remained ”concerned with their finances, the cost of living and gas prices.”

Department Stores

Macy’s Inc. and J.C. Penney Co. said sales declined. Nordstrom, among the few chains to post a gain, fell short of analysts’ estimates.  “Unseasonable weather in large areas of the country and the well-chronicled issues affecting the housing market impacted our sales for the September period,” J.C.Penney Chief Executive Officer Myron Ullman said in a statement yesterday.  Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.3 percent, following little change the month before.  The government uses data from other sources to calculate the contribution from the three categories excluded.

Economists had forecast producer prices would rise 0.5 percent, according to the median of 73 projections.  Core prices were forecast to rise 0.2 percent.  Over the past 12 months, producer prices rose 4.4 percent, compared with a 2.2 percent rise in the 12 months through August.  Producer prices excluding food and energy rose 2.0 percent in the year through September.

Fed’s Preference

Fed policy makers, including Chairman Ben S. Bernanke, have said they prefer to look at core price measures to gauge underlying trends in inflation.  Faced with rising commodity costs, some companies are raising prices to maintain their profit margins.  Kimberly-Clark Corp., the maker of Huggies diapers, said Oct 9 it’s raising prices in the U.S. 4 percent to 7 percent on Feb. 3 to counter higher raw material and energy costs.  The increases will affect products in the company’s consumer tissue and baby and childcare businesses, the Dallas-based company said in a statement.  “The increases are necessary to offset significant inflationary pressure from higher raw material and energy costs,” the company said.  Some companies aren’t passing on all their cost increases to consumers.  “We pass on a lower rate of price increases to consumers than we are feeling in our input costs,” said Stephen Sanger, chairman of food processor General Mills Inc. yesterday at the annual Business Council meeting in Williamsburg, Virginia.