October Retail Sales Beat Forecasts, Point to Firming Growth

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John Minchillo/AP WASHINGTON -- 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. While demand is picking up, inflation remains muted. Other data Wednesday showed an unexpected fall in consumer prices last month, which should give the Federal Reserve room 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. "Overall this suggests the consumers are supporting the current recovery," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pa. Still, that isn't enough to generate some inflation in the economy. In a separate report, the Labor Department said its consumer price index slipped 0.1 percent last month as gasoline prices fell sharply, after rising 0.2 percent in September. In the 12 months through October, the CPI increased 1 percent, the smallest gain since October 2009. It had advanced 1.2 percent in September. Economists polled by Reuters had forecast consumer prices to be unchanged last month. U.S. stock index futures added to gains on the data, while Treasury bond prices extended losses. Prices Held in Check Stripping out the volatile energy and food components, the so-called core CPI edged up 0.1 percent, rising by the same margin for a third consecutive month. That could heighten concerns among some U.S. central bank officials about inflation being too low. During the past 12 months, the core CPI increased 1.7 percent, matching the prior month's rise. The Fed targets 2 percent inflation, although it tracks a gauge that tends to run a bit below the CPI. The absence of inflation in the economy suggests the Fed will probably stick to its monthly $85 billion bond buying program at least through early 2014 as it tries to stimulate demand through low interest rates. Fed Chairman Ben Bernanke said Tuesday the U.S. central bank would maintain its ultra-easy monetary policy for as long as needed, adding that policymakers wanted evidence of durable job growth before scaling back bond purchases. "The inflation backdrop continues to be supportive to the Fed's ultra-accommodative policy stance," said Millan Mulraine, senior economist at TD Securities (TD) in New York. "With core inflation momentum continuing to drift lower there is evidence that the disinflationary impulse in core prices that has become a concern at the Fed is lingering." Core retail sales last month were bolstered by sturdy gains in receipts at clothing, furniture, electronics and sporting goods shops, among others. Sales at electronics and appliance stores rose by the most since April, suggesting a residual boost from the introduction of Apple's (AAPL) new iPhone the previous month. The report suggested little impact from a 16-day partial shutdown of the federal government in October, which economists had expected would dampen sales. Sales at auto and parts dealers rebounded 1.3 percent after falling 1.2 percent in September. That helped to offset a drop in sales at gasoline stations and a fall in receipts at building materials and garden equipment shops, lifting overall retail sales 0.4 percent in October. Retail sales were flat in September and economists had expected them to edge up 0.1 percent last month.