Surging Auto Purchases Drive US Retail Sales Higher

U.S. retail sales rose unexpectedly in October as vehicle sales rebounded from a deep slump. However, non-auto sales rose less than forecast, suggesting consumers remain cautious as unemployment surges amid a “jobless recovery.”

Sales at the nation’s retail outlets increased 1.4%, the Commerce Department said today (Monday), much better than the 0.9% increase projected by the median estimate of 66 economists in a Bloomberg News survey. But September sales were revised downwards to a 2.3% decrease from the previous estimate of a 1.5% decline.

Aside from automobiles, other sales rose just 0.2%. That increase marked the third month in a row that sales rose, but failed to meet the 0.4% climb economists had predicted.

Michael Feroli, an economist at JPMorgan Chase & Co. (JPM) in New York, who projected sales would increase 1.3%, told Bloomberg the numbers give retailers hope for a brighter holiday season.

“They are spending a little more freely, which bodes well for the holiday season. Given the backdrop of the labor market, this is actually as good as one can hope for,” he said.

Consumer spending accounts for 70% of all economic activity in the United States and retail sales are an important indicator of consumer sentiment. Economists have expressed growing concern that the economic recovery could be stunted as consumers pull back on spending amid mounting unemployment.

The U.S. unemployment rate rose to 10.2% in October - its highest level since April 1983.

But despite fears about joblessness, sales of autos and parts bounced back sharply, rising 7.4% in October, after September sales tumbled by 14.3%. The rebound followed the expiration in August of the government’s popular “Cash for Clunkers” incentive program that had ignited demand for motor vehicles.

Demand for vehicles has steadied after plummeting to a 30-year low earlier this year. The industry rebounded from the September plunge in October as General Motors Co. and Ford Motor Co. (F) reported their first combined sales gain in three years. Overall sales climbed to a 10.5 million annual rate from 9.2 million, Bloomberg reported.

GM’s November sales pace will be about the same as last month’s, Chief Executive Officer Fritz Henderson said in a Bloomberg Television interview.

Even without the boost from auto sales, there were signs the American consumer is slowly making a comeback. Sales climbed 0.5% at clothing, department, health and personal care stores. Restaurants and bars were also up, along with mail order and Internet retailers.

But housing-related and other cyclical retailers continued to lose sales.

Furniture and building supply stores fell 0.8%, electronics stores fell 0.6%, and building material and garden supplies dealers slumped 2.4%, indicating the U.S. housing market still has a long road to recovery.

A separate report by the New York Federal Reserve Bank on Monday showed the Empire State’s manufacturing activity dropped in November for the first time in four months, illustrating the uneven nature of the recovery after the worst downturn since the Great Depression.

Most analysts see the latest data as consistent with a slow economy that won’t show robust growth until businesses increase investment and create more jobs.

“I think we are moving in the right direction, but it’s not a straight line higher. Until we see jobs data come in better than expected the consumer will continue to keep their wallet a little tighter and save,” Sean Simko, fixed-income portfolio manager at SEI Investments Co. (SEIC) in Oaks, Pa. told Reuters.

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