Retail sales rise as consumer sentiment slips (Reuters)

WASHINGTON (Reuters) – Retail sales grew at the fastest pace in seven months in September as consumers shook off concerns about a weak stock market and political gridlock, giving a bit more momentum to the economic recovery.

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.

(Additional reporting by Leah Schnurr, Chuck Mikolajczak and Ellen Freilich in New York, Editing by Andrea Ricci)

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Retail sales rose strongly in September on autos (AP)

WASHINGTON – U.S. consumers stepped up their spending on retail goods in September, a hopeful sign for the sluggish economy.

They spent more on autos, clothing and furniture last month to boost retail sales 1.1 percent, the Commerce Department said Friday. It was the largest gain in seven months.

Auto sales rose 3.6 percent to drive the overall increase. Still, excluding that category, sales gained a solid 0.6 percent.

The government also revised the August figures to show a 0.3 percent increase, up from its initial report of no gain.

Stocks rose after the release of the report, which is the government's first look at consumer spending each month. The Dow Jones industrial average climbed 87 points in afternoon trading. Broader indexes also rose.

A separate Commerce report showed that businesses added to their stockpiles for a 20th consecutive month in August while sales rose for a third straight month. The increase suggests businesses were confident enough in the economy to keep stocking their shelves.

Stronger consumer spending could help tamp down concerns that the economy is at risk of a recession. Consumer spending is closely watched because it accounts for 70 percent of economic activity.

The increase "shows that households are not completely down and out," said Paul Dales, senior U.S. economists for Capital Economics. Dales said the data correspond with an annual growth rate of 2 percent for consumer spending growth in the July-September quarter.

Dales cautioned that weak hiring will likely prevent consumers from spending at this rate on a month-to-month basis.

"Sales growth is unlikely to remain this strong," he said. "So although a recession has become less likely, households still can't be relied on to drag the US economy out of its continued malaise."

The jump in retail sales prompted some economists to boost their growth forecast for the July-September quarter. Dean Maki at Barclays Capital Research said his group raised its forecast to 2.5 percent, up from 2 percent.

Chris G. Christopher Jr., senior economist at IHS Global Insight, said the increase in spending was an improvement from the first half of the year. Still, he said overall growth was not enough to generate significant hiring gains.

"Do not break out the champagne. Things seem better on the consumer and retail fronts, but consumers still have many problems," he said.

The September gains were broad-based:

‧ Department stores sales increased 1.1 percent, a big turnaround from August when sales had fallen 0.5 percent. The drop was blamed in part on Hurricane Irene disrupting shopping along the East Coast.

‧ A larger category of general merchandise stores, which includes big-chain retailers including Wal-Mart and Target, showed a 0.7 percent rise last month after no gain in August.

‧ Specialty clothing stores sales rose 1.3 percent, after a 0.4 percent August drop.

‧ Sales were up 1.1 percent at furniture stores but edged down a slight 0.1 percent at hardware stores. That surprised economists, who expected more traffic from people seeking to repair damage from the hurricane.

‧ Gas station sales rose 1.2 percent.

The overall economy grew at an annual rate of 0.9 percent in the first six months of the year. That was the weakest growth since the recession ended in June 2009.

High unemployment and steep gasoline prices forced many consumers to cut back on spending this spring. Without more jobs or higher pay increases, they are likely to keep spending cautiously.

In September, the economy generated 103,000 net jobs. That's enough to calm recession fears, but it is far from what is needed to lower the unemployment rate, which stayed at 9.1 percent for the third straight month.

Employers have added an average of only 72,000 jobs in the past five months. That's far below the 125,000 per month needed to keep up with population growth. And it's down from an average of 180,000 in the first four months of this year.

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Flat retail sales keeps U.S. on recession watch (Reuters)

WASHINGTON (Reuters) – Growth in U.S. retail sales stalled in August after a spending battle in Congress crushed consumer sentiment, leaving the economy perched uncomfortably close to recession.

The weak data puts more pressure on the U.S. Federal Reserve to try to boost growth, while a report showing flat wholesale prices in August could support arguments within the central bank to take action.

"The slowdown in the economy is real," said Steven Ricchiuto, chief economist at Mizuho Securities in New York. "It's a broad-based slowdown, and that's pivotal."

Retail sales were unchanged last month from July, the Commerce Department said on Wednesday. The government also lowered previous estimates for growth during June and July.

The data was the latest hard evidence the United States is flirting with recession. Other reports have shown there was no employment growth in August, while claims for jobless benefits rose in early September.

Consumer confidence plunged last month after a battle over the deficit slammed stock prices and pushed the nation to the brink of default. The country's debt was then downgraded.

"The consumer reacted to the debt ceiling (argument), the downgrade and the equity market swoon by basically hunkering down and not spending," said Tom Porcelli, senior U.S. economist at RBC Capital Markets in New York.

Citing the weak data, Nomura cut its forecast for third-quarter economic growth to 2.4 percent from 2.6 percent.

However, major U.S. stock indexes shook off the data and rose after the head of the European Commission said he would soon present options for the introduction of euro area bonds, which could help the region fight its debt crisis.

RECESSION FEARS

Consumer spending accounts for about two-thirds of U.S. economic activity, and the retail sales figures showed spending during the first two months of the third quarter was weaker than many forecasters expected.

An increase in sales of electronics, gasoline and food was balanced with drops in purchases of cars, furniture and clothes. Spending at restaurants and bars also dipped.

A gauge that hews most closely to the measure the government uses in calculating GDP rose just 0.1 percent.

A Reuters poll released on Wednesday found economists see a nearly one-in-three chance the United States could re-enter recession. Many economists expect the Fed will unveil new measures to boost growth next Tuesday following a two-day meeting.

U.S. households still feel the pain from the country's 2007-2009 recession. A report on Tuesday showed the U.S. poverty rate -- already the highest in the developed world -- rose last year to 15.1 percent, its highest level since 1993.

Companies are also feeling the pinch. Best Buy Co cut its profit outlook for the year on Tuesday, citing economic uncertainty.

Policymakers are struggling to counter the weakness.

President Barack Obama is lobbying Congress to approve his recently unveiled job stimulus program but opposition Republicans have harshly criticized parts of the plan.

Fed Chairman Ben Bernanke has hinted at further monetary stimulus, although three policymakers within the central bank last month dissented over a pledge to keep interest rates low into 2013.

A separate report on Wednesday from the Labor Department showed prices received by U.S. producers were unchanged in August, held down by a drop in energy costs. That could help keep inflation from being an immediate roadblock to further monetary stimulus.

Another report from the Commerce Department showed U.S. business inventories rose slightly less than expected in July, suggesting firms remained cautious about future demand.

Economic growth slowed sharply during the first half of the year, leaving the economy vulnerable to potential shocks like an escalation of Europe's debt crisis.

U.S. Treasury Secretary Timothy Geithner urged Europe to move more aggressively to solve its troubles, but said it has the financial and economic capacity to do so.

(Additional reporting by Mark Felsenthal in Washington and Richard Leong and Emily Flitter in New York; Editing by Andrea Ricci, Neil Stempleman and Dan Grebler)

(jason.lange@thomsonreuters.com; +1 202 310 5487; Reuters Messaging: jason.lange.reuters.com@reuters.net))

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Wall St up as retail sales overshadow sentiment (Reuters)

NEW YORK (Reuters) – U.S. stocks rose about 1 percent on Friday as mildly encouraging retail sales put the S&P on track for a two-day winning streak for the first time since mid-July as investors shrugged off weak consumer sentiment data.

Still, the market was on track for its worst three-week decline since March of 2009, when stocks hit 12-year lows.

Trading remained volatile, with stocks retreating after the sentiment reading, then rebounding by midday.

U.S. consumer sentiment fell to its lowest level since 1980, but retail sales posted their biggest gains in three months in July.

"On the whole, the market just went overboard and discounted a lot of terrible things that probably won't happen." said John Carey, portfolio manager at Pioneer Investments in Boston.

"At some point people will look around and see that a lot of stocks are very attractively priced."

The Dow Jones industrial average gained 143.50 points, or 1.29 percent, to 11,286.81. The Standard & Poor's 500 Index rose 9.90 points, or 0.84 percent, to 1,182.54. The Nasdaq Composite Index added 18.43 points, or 0.74 percent, to 2,511.11.

If the S&P 500 ends higher, it will be the index's first two-day streak since July 21-22. It has fallen for 11 of the past 14 days.

European shares closed up 3.6 percent, helped by a short-selling ban on financial shares by France, Italy, Spain and Belgium and European Central Bank data that eased fears some banks faced liquidity issues.

"That's been part of the problem. The political leadership here and in Europe has been uninspiring and indecisive, so the markets have had to sort out a lot of things for themselves and it's been a real struggle," said Carey.

Among individual stocks, Nvidia Corp shed 1.9 percent to $13.16, giving back early gains a day after it forecast a larger-than-expected jump in revenue. Some analysts were surprised with the lack of growth of one of its much-touted processors.

Dillard's Inc slumped 16.1 percent to $42.56 after it posted quarterly profits below estimates.

The majority of S&P indexes were in positive territory. Advancers beat decliners on the New York Stock Exchange by about three-to-one, while the ratio on the Nasdaq was about three-to-two.

(Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)

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Jobless claims fall, but retail sales timid (Reuters)

WASHINGTON (Reuters) – The U.S. economy will struggle to regain speed in the second half of the year, new data on Thursday suggested, as the number of Americans filing for first-time jobless benefits remained high and retail sales barely rose in June.

But a drop in energy costs, which caused wholesale prices to post their biggest fall last month in 1-1/2 years, could boost consumer spending and give the economy much needed impetus after growth faltered early in 2011.

Initial claims for state unemployment benefits fell 22,000 to 405,000 last week, the lowest since mid-April, the Labor Department said. Economists expected claims to drop to 415,000. Still, claims held above the 400,000 level usually associated with a stable labor market.

Economists also cautioned against reading to much into the decline in jobless claims last week, which included the July 4 Independence Day holiday. Claims are volatile around this time of year because automakers normally shut plants for annual retooling.

There were fewer plant shut downs this year, however, after vehicle production was disrupted because of a shortage of parts from Japan in the aftermath of the March earthquake.

"The economy is touch and go. You really need to take the improvement in claims with a grain of salt. It feels like the labor market is moving sideways," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Retail sales rose 0.1 percent as a rebound in receipts from auto dealers offset the biggest drop in gasoline receipts in a year, a Commerce Department report showed, after dipping 0.1 percent in May.

Economists had expected sales to slip 0.1 percent. Sales excluding gasoline rebounded 0.3 percent after declining 0.2 percent in May.

Federal Reserve Chairman Ben Bernanke on Thursday reiterated the U.S. central bank, which ended a $600 billion government bond-buying program in June, was ready to ease monetary policy further if growth and inflation slowed much more.

Data last week showed employment growth stalled in June, with nonfarm payrolls growing by only 18,000 jobs and the unemployment rate rising to 9.2 percent.

Investors were encouraged by the drop in jobless claims and a higher-than-expected profit from JPMorgan Chase & Co, lifting U.S. stocks and modestly pushing down prices for U.S. government debt.

JPMorgan, the second-largest U.S. bank, made more loans during the quarter than in the first quarter and added staff, signs other banks could be lending more and leading to further growth.

WEAK CONSUMER SPENDING

The U.S. economy has been hurt by high commodity prices and supply chain disruptions from Japan.

The retail sales report suggested that growth in consumer spending in the April-June period would be less than the 2.2 percent annual pace in the first quarter.

Another report from the Commerce Department showed business inventories were starting to pile up because of weak demand. Inventories increased 1 percent in both May and April.

"The picture for June retail spending was definitely weak, though from some perspectives it wasn't terrible," said Michael Feroli, an economist at JPMorgan in New York. "Real consumer spending in the second quarter looks like it only advanced at a paltry 0.6 percent annual rate."

But the drop in gasoline prices from their peak just above $4.00 a gallon in May should help to ease stretched household budgets and support spending in coming months.

The Producer Price Index fell 0.4 percent, the steepest decline since February 2010, the Labor Department said in a second report, after a 0.2 percent rise in May.

Last month, sales at service stations dropped 1.3 percent, the largest decline since June last year, reflecting a 22.5 cent per gallon decline in gasoline at the pump in June.

That decline was mitigated by a 0.8 percent bounce back in motor vehicles receipts, indicating an easing in shortages related to supply chain disruptions from Japan. Motor vehicle sales declined 1.8 percent in May.

Excluding autos, retail sales were flat last month, the weakest reading since last July, after rising 0.2 percent in May. Clothing store receipts rose 0.7 percent last month and sales at building materials and garden equipment suppliers increased 1.3 percent.

Receipts at sporting goods, hobby, book and music stores fell 0.7 percent, however, while sales of electronics and appliances dipped 0.2 percent.

Core retail sales -- excluding autos, gasoline and building materials -- edged up 0.1 percent in June after gaining 0.1 percent the prior month. They correspond closely with the consumer spending component of the government's GDP report.

(Additional reporting by Pedro Nicolaci da Costa; Editing by Padraic Cassidy)

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