Traverse City Record-Eagle

Archive: Tuesday

October 16, 2012

Confident consumers give U.S. retail a lift

Retail sales jumped up 1.1 percent in September

WASHINGTON (AP) — Americans spent more money at retailers in September — a buying surge that reflected growing consumer confidence and the launch of the latest iPhone.

Retail sales jumped 1.1 percent last month, producing the best two months of sales in two years, according to figures released Monday by the Commerce Department.

"The consumer is back," said Joel Naroff, chief economist at Naroff Economic Advisors. "They are not spending money like it is going out of style, but they are spending at a more normal pace that is consistent with a moderately growing economy."

The spike in spending could boost sluggish growth and help revitalize President Barack Obama's campaign after a strong debate performance by challenger Mitt Romney.

The increase comes only 10 days after a report that unemployment fell to its lowest level since Obama took office. And it follows a survey last week by the University of Michigan that showed consumer confidence rose in early October to a five-year high.

Stocks climbed after the retail report. The Dow Jones industrial average gained 95 points to close up at 13,424. Broader indexes also rose.

Businesses appeared to be banking on a resurgent consumer.

A second Commerce Department report Monday showed companies increased their stockpiles in August by 0.6 percent after a slightly larger gain in July. Companies typically step up restocking when they anticipate sales will rise in coming months.

The retail sales report is the government's first monthly look at consumer spending. Consumer spending is critical because it drives nearly 70 percent of economic activity.

In September, retailers saw gains in almost every major category. That contrasted with August's retail sales, which rose almost entirely on the strength of auto sales and higher gas prices.

Sales of electronics and appliances last month swelled 4.5 percent, in part because of iPhone sales. Sales at auto dealers increased 1.3 percent. Building materials and garden supplies, furniture and clothing sales all gained, too.

Some of the September increase also reflected higher food and gas prices. If those prices continue to rise, consumers could cut back elsewhere, and that could keep growth from accelerating.

But economists pointed to a key measure of sales that rose a solid 0.9 percent without counting autos and gas station sales. Many observers say that shows consumers are not too worried.

"We saw a cautious consumer in August because they had to spend more on gasoline," said Chris G. Christopher Jr., senior economist at IHS Global Insight. "Now in September, the consumer is starting to spend more on other items. Consumers are feeling better."

Christopher said the introduction of the new Apple iPhone was definitely a factor in September. He estimated that 4 million iPhones were sold in the United States in the latter half of September.

The entire gain from electronics and appliance stores added only about 0.1 percentage point to September retail sales increase. So even excluding that gain, sales were solid, Christopher said.

Economic growth has been anemic in the first half of the year, held back by weaker consumer spending. The latest figures suggest consumers are shaking off high unemployment and the threat of tax increases that could come next year if Congress fails to reach a deal to prevent the economy from going over the "fiscal cliff."

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