Ahead of the Bell: Retail Sales

WASHINGTON - Retail sales likely rose in October with part of the strength coming from a rebound in auto sales. Even with a gain, economists worry that consumer spending, the critical ingredient for overall economic growth, could falter in the months ahead.

Economists surveyed by Thomson Reuters predict retail sales increased 0.8 percent in October, rebounding from a 1.5 percent drop in September. They expect that excluding autos, retail sales rose 0.4 percent, following a 0.5 percent gain in September.

The Commerce Department is scheduled to release the report at 8:30 a.m. EST Monday.

The big swing in the overall number reflects that auto sales plunged in September after surging in August as buyers rushed to take advantage of the government's Cash for Clunkers incentives before the program expired at the end of the month.

Automakers already have reported that sales rebounded in October to an annual rate of 10.5 million units, significantly better than the 9.2 million in September.

Consumer spending, which accounts for 70 percent of total economic activity, is being closely watched to see whether households will continue helping the economy to emerge from the worst recession since the 1930s.

The overall economy, as measured by the gross domestic product, grew at an annual rate of 3.5 percent in the July-September quarter, due largely to a rebound in consumer spending. It grew at a solid rate of 3.4 percent in the quarter, after having declined in three of the previous four quarters.

The concern is that spending will sag in the current quarter and going forward as the positive effects of the government's stimulus programs begin to wane and families continue to struggle with unemployment at a 26-year high of 10.2 percent and other problems related to the downturn.

Many economists believe there is a significant threat of a double-dip recession in which growth rebounds for a few quarters and then slips back.

The Reuters/Michigan survey of consumer sentiment declined sharply in early November to a reading of 66 after rising above 70 in September and October. Attitudes about the short-term economic outlook collapsed to the lowest level since April and consumers' assessments about the state of their personal finances also deteriorated sharply.

Brian Bethune, chief U.S. economist at IHS Global Insight, said difficult conditions in labor markets, including the big jump in unemployment in October, probably played a large role in the drop in consumer sentiment.

For October, the nation's big retail chains reported some of their best results since April 2008. Sales open at least a year rose 2.1 percent in October compared with activity in October 2008, according to the International Council of Shopping Centers-Goldman Sachs. That result beat economists expectations for a 1 percent rise.

Affluent shoppers, who had been tight with their purse strings since the financial meltdown struck with force a year ago, spent more for designer clothes, helping deliver solid gains for Saks Inc. and Nordstrom Inc.

Other bright spots were Costco Wholesale Corp.; TJX Cos., which operates T.J. Maxx and Marshalls, and Gap Inc.

Many stores were helped by cooler weather which increased sales of fall clothing. Sales also got a boost from early holiday discounts offered by some retail chains.

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