U.S. retail sales point to pick-up in demand, but inflation subdued

Wed Nov 20, 2013 1:07pm EST
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By Lucia Mutikani

WASHINGTON (Reuters) - A gauge of U.S. consumer spending rose more than expected in October as households bought a range of goods, suggesting upside momentum in the economy early in the fourth quarter.

Wednesday's report was the latest sign a 16-day government shutdown last month had a limited impact on the economy and should ease concerns about the holiday shopping season.

"It reinforces the current narrative of sustained growth momentum in the recovery going into the last quarter of the year, even at a time when the economy was contending with the headwinds created by the government shutdown," said Millan Mulraine, senior economist at TD Securities in New York.

Despite demand picking up, inflation is still subdued, which should give the Federal Reserve latitude to maintain its current pace of bond purchases for a while.

Retail sales excluding automobiles, gasoline and building materials increased 0.5 percent last month after advancing 0.3 percent in September, the Commerce Department said.

Economists polled by Reuters had expected so-called core sales, which correspond most closely with the consumer spending component of gross domestic product, to rise 0.3 percent.

The better-than-expected increase in core retail sales suggested consumer spending would likely accelerate from a two-year low touched in the third quarter and probably limit downside risks to economic growth during the fourth quarter.

The report added to data such as nonfarm payrolls and manufacturing that have suggested the partial shutdown of the federal government had not inflicted widespread damage on the economy as initially feared.   Continued...

A woman shops for jeans at a J.C. Penney store in New York November 27, 2012. REUTERS/Shannon Stapleton