Falling gas prices help retail profits

ASSOCIATED PRESS

Retail sales performed far better than expected in October as consumers took encouragement from falling gasoline prices.

In other good economic news, core prices at the wholesale level — excluding food and energy costs — dropped by 0.3 percent last month, the biggest decline in two years. That offered reassurance that the big run-up in energy prices has yet to spill over into more widespread inflation.

The Commerce Department reported that retail sales dipped 0.1 percent in October. However, the weakness was concentrated in a 3.6 percent decline in auto sales as the boost from summer sales incentives waned and consumers shunned gas-guzzling sport utility vehicles.

Excluding autos, retail sales rose by a solid 0.9 percent last month, triple the pace economists had expected with department stores and specialty clothing stores seeing a strong rebound.

Analysts said a retreat in gasoline prices last month apparently encouraged consumers to resume spending.

“This suggests that the economy has largely shrugged off the ill effects of the hurricanes,” said Mark Zandi, chief economist at Economy.com.

Before the encouraging retail sales report, economists had worried that the higher energy costs could trigger cutbacks in other areas of retail sales, a worrisome prospect given that consumer spending accounts for two-thirds of economic activity.

Consumer confidence had fallen sharply in September and October under the effect of a surge in energy prices that saw the nationwide average for gasoline briefly rise above $3 per barrel, reflecting widespread shutdowns of Gulf Coast oil refineries after Hurricane Katrina struck Aug. 29.

On the inflation front, the Labor Department reported yesterday that wholesale prices rose by 0.7 percent in October after an even sharper 1.9 percent increase in September.

However, excluding food and energy costs, so-called core inflation fell by 0.3 percent in October, the biggest one-month decline in two years.

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