Retail Sales Rise Sluggish 0.2%; Inflation Is Tame

U.S. retail sales rose a sluggish 0.2 percent in October while an inflation measure grew less than expected, according to government data Wednesday, which may give the Federal Reserve more leeway to prop up a slowing economy.

Separately, U.S. businesses inventories rose a larger-than-expected 0.4 percent in September while sales of goods rose 0.6 percent.

Steven Senne

The modest retail sales gain matched economists' expectations, as a housing downturn and steep oil prices constrained consumer spending, Commerce Department data showed.

Last month's increase slowed sharply from September, when sales rose an upwardly revised 0.7 percent.

Modest Inflation

Separately, the Labor Department said prices paid at the wholesale level rose 0.1 percent, below economists' forecasts for a 0.3 percent rise and well below September's 1.1 percent advance.

Core producer prices, which strip out volatile food and energy costs, were unchanged from September. Economists had expected a 0.2 percent rise.

"This leaves the door more open for the Fed to do more cutting," said Robert Macintoch, chief economist at Eaton Vance Corp in Boston. "Inflation's not an issue and consumers continue to pull back on their activity ... If the consumer really pulls back, then you are talking about a recession."

The biggest rise in inventories at retailers, manufacturers and wholesalers was in furniture, home furnishings, electrical supplies and appliance stores, where stockpiles rose 1.3
percent in September after a 0.3 percent rise in August, the Commerce Department said.

The rise exceeded estimates from Wall Street analysts who forecast business inventories to rise 0.3 percent in September after an upwardly revised 0.3 percent rise in August. This was
originally reported at 0.1 percent in August.

Fed in Tricky Position

The Fed finds itself in the tricky position of trying to insulate the U.S. economy from a housing downturn without stoking inflation.

The central bank has said it expects fourth-quarter economic growth to slow from the surprisingly strong annual rate of 3.9 percent posted in the third quarter, and it will watch the data closely for signs of further deterioration.

Economists polled by Reuters had widely expected retail sales growth to slow from September's pace as consumer confidence sank under the weight of the housing slide, rising oil prices and tougher credit conditions.

Investors are watching retail sales data closely for signs that consumers are caving, which would deal a severe blow to the already shaky U.S. economy. Consumer spending accounts for more than two-thirds of U.S. economic activity.

The Commerce data showed that sales at home furnishing stores declined 0.9 percent in the latest month as the housing slump took its toll, while gasoline stations posted a 0.8 percent increase.

Excluding autos, October sales rose 0.2 percent, a shade below economists' forecast for an increase of 0.3 percent. On the inflation front, the PPI data showed energy prices fell 0.8 percent in October after a 4.1 percent rise in September. Prices for light trucks, which include slow-selling sport/utility vehicles and pickup trucks, fell 2.7 percent.

Core prices excluding cars and light trucks rose 0.2 percent in October.