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Consumers hit retail stores to give economy boost
Question of the Day
WASHINGTON — Consumers are giving a modest lift to the economy.
They spent more on trucks, electronics and building supplies in October to boost retail sales for the fifth straight month.
The gains provide an encouraging start for the October-December quarter. They come just as separate reports show that wholesale prices are flattening and U.S. shoppers are spending more at Wal-Mart, the world's largest retailer.
Still, consumers might not be able to sustain their spending growth if unemployment remains high and pay raises scant. And Europe may be on the brink of a recession that could further slow U.S. growth next year.
"The consumer has to come through this holiday season if we are going to get back to more decent growth rates, and the early readings are those households have hit the stores quite strongly," said Joel Naroff, chief economist at Naroff Economic Advisors.
Retail sales rose 0.5 percent from September to October, the Commerce Department said Tuesday. Healthy auto sales helped. Even without autos, sales rose by the most since March.
And excluding autos and sales at gasoline stations, sales rose 0.7 percent, also the biggest increase since March.
A rebound in consumer spending was the key reason why the economy grew at an annual rate of 2.5 percent in the July-September quarter. It was the best quarterly performance in a year.
Economists said the October retail sales data suggest that the economy is growing at roughly the same pace in the final three months of the year. Consumer spending fuels about 70 percent of economic activity.
Stronger growth has helped calm fears that the U.S. economy might be at risk of another recession.
Still, economists worry that the spending can't continue at the same pace. Over the summer, consumers spent more while earning less. Many had to dip into their savings to make up the difference.
"Overall, the economy appears to be growing at a decent clip," said Paul Dales, a senior U.S. economist at Capital Economics.
Still, Dales added, "Consumption cannot grow at a faster rate than incomes indefinitely."
Many fear Europe's debt crisis is on the verge of triggering a recession in the region. The eurozone economy barely grew in the July-September quarter, according to the European Union statistics office. It was the second straight quarter of paltry growth.
Most economists say growth won't improve in the months ahead. Consumers and governments in Europe are expected to spend less because of the debt crisis.
One positive sign for the U.S. economy: Inflation pressures are starting to ease, largely because energy costs have declined.
U.S. companies paid less for wholesale goods last month for the first time since June. And excluding volatile food and energy costs, so-called "core" wholesale prices were unchanged.
Lower prices mean consumers will have more buying power, potentially boosting consumer spending. A jump in gas and food prices earlier this year had slowed consumption over other goods.
October retail sales were 7.2 percent higher than the same month last year. Internet and catalog sales have risen more than 11 percent since then. Consumers also spent more on sporting goods and at hobby and book stores.
Auto sales have also rebounded since the Japan earthquake and tsunami. The 0.4 percent rise in October from September followed a 4.2 percent surge in the previous month. Sales have increased 7 percent from the same month last year.
In the Miami area, auto sales were decent in October and picked up in the first half of November, said Ed Williamson, part owner of two Buick-Cadillac-GMC dealerships.
People are particular about prices and want incentives, such as low-cost leases, Williamson said. Still, he's optimistic that the slow auto sales recovery in South Florida will continue into next year.
"I think things started to get better down here in the summer," Williamson said. "But at the moment we're seeing the most showroom traffic that we've seen all year in the first two weeks of November."
People are also buying more electronics and appliances. Sales at those stores surged 3.7 percent in October, the biggest monthly gain for that group in nearly two years.
Chris G. Christopher, senior economist at IHS Global Insight, said the launch of the Apple iPhone 4S helped drive those sales.
"People are splurging a little bit here and there," Christopher said, who cautioned that weak income growth will remain a drag on spending next year.
Megan Dunn, a grad student from Philadelphia, said she's limited herself to buying clothes on clearance. But she still goes out for dinner sometimes because she enjoys the time with friends and doesn't mind spending on small treats.
"Eating out is always going to be expensive," Dunn said. "But it's a social experience."
David Hauck said sales at the children's store he owns with his wife in Boston have been up almost every month this year. In October, they rose 8 percent.
He suspects many people want to keep spending on their children, no matter how bad the economy gets.
Hauck and his wife have adjusted their inventory to focus on what people need. More baby supplies, fewer toys.
"Maybe they're cutting back in other ways," he said. "But they know they're going to have a crib or stroller for many years."
General merchandise stores, which include Wal-Mart and Target, reported flat sales in October after a modest increase in September.
But Wal-Mart Stores Inc., the world's largest retailer, reported its first quarterly revenue gain in more than two years at its branded U.S. stores. The retail giant says it did so by focusing on low pricing and by stocking popular brands and products.
The gain is a good sign for the retail industry and the U.S. economy as a whole. Wal-Mart's core low-income shoppers have been particularly hard hit by unemployment, which has been near 9 percent for more than two years.
• AP business writers Pan Pylas in London, Christina Rexrode and Anne D'Innocenzio in New York, Tom Krisher in Detroit and Christopher S. Rugaber in Washington contributed to this report.
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