US retail sales jump in October as prices tumble to 4-year low

The Westfield North County Mall in Escondido, Calif.
Sam Hodgson | Bloomberg | Getty Images

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.

The Commerce Department said on Wednesday retail sales excluding automobiles, gasoline and building materials increased 0.5 percent last month after advancing 0.3 percent in September.

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.

October retail sales up 0.4%

Core 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 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.

Inflation hits four year low

In a separate report, U.S. consumer prices unexpectedly fell last month, with the annual inflation rate at its lowest in four years, which should give the Federal Reserve room to maintain bond purchases for a while.

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 1.0 percent, the smallest gain since October 2009. It had advanced 1.2 percent in September. Economists polled by Reuters had forecast consumer prices unchanged last month and increasing 1.0 percent from a year ago.

The Labor Department said as a result of a 16-day government shutdown last month, the sample of prices used to calculate the October index was about 75 percent of the amount usually used in the CPI.

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 took the increase over the past 12 months to 1.7 percent, matching the prior month's rise.

Tepid domestic demand is keeping a lid on inflation. 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.

--By Reuters