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Retail Sales Slowed Just Before Holiday Season

Mild weather last month made buying winter clothing a low priority for U.S. shoppers, which
restrained retail sales growth, a report showed.

Relative flat gasoline prices until late October also reined in sales growth in dollar terms, said SpendingPulse, the retail data service of MasterCard Advisors, an arm of MasterCard Worldwide.

Holiday Shopper at Walmart
Ed Betz
Holiday Shopper at Walmart

These two factors caused U.S. retail sales, excluding cars, to rise by only 0.2 percent last month, the weakest rate of growth in three months. The increase was sharply below
September's robust 0.6 percent rise, which was the biggest monthly gain this year, according to SpendingPulse.

"We are still growing but at a slower pace," said Michael McNamara, SpendingPulse's vice president of research and analysis. "Apparel did not help overall sales because of the
mild weather."

The government will release its survey on October retail sales on Wednesday. Economists polled by Reuters predicted that overall sales likely rose 0.2 percent in October from September
and ex-auto sales likely grew 0.3 percent.

A significant slowdown in consumer spending before the year-end holiday season, a crucial period for the retail industry, will likely worry investors and the Federal Reserve. Both have been monitoring the housing slump and the credit squeeze and their effect on consumers, economists say.

If the consumer sector, which accounts for more than two-thirds of the U.S. economy, shows signs of faltering, Fed policy-makers will be pressured to ease interest rates further to prevent a broad economic slowdown.

The recent surge in gasoline prices, with crude reaching nearly $100 a barrel, should inflate overall retail sales in dollar terms in November. according to SpendingPulse.

But the spike in gasoline prices, as well as escalating heating oil costs, would cut energy sales in the coming months, SpendingPulse's McNamara said. "Higher gasoline prices are going to help the overall number, but we are going to pump less," he said.

Seasonally adjusted sales without autos or gasoline rose 0.3 percent, rebounding from a 0.1 percent dip in September.

The daily rate on gasoline consumption is down almost 8 percent from the summer peak, according to SpendingPulse.

The firm's measure of "core" consumer spending, which excludes cars, gasoline and building materials, advanced 0.4 percent, doubling September's 0.2 percent rise.

The SpendingPulse data is derived from the aggregate sales in the MasterCard U.S. payment network, together with estimates on all other payment forms, including cash and checks.

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