Strong auto purchases buoy US retail sales

Retail sales increase 0.6% in September, while producer prices rise 0.3%

18:27 October 14, 2016

Washington: US retail sales rebounded in September amid a surge in motor vehicle purchases and a rise in discretionary spending, pointing to sustained domestic demand that reinforces expectations of an interest-rate increase from the Federal Reserve in December.

Other data on Friday suggested a pickup in inflation, with producer prices rising broadly last month to record their biggest year-on-year increase since December 2014. The reports were the latest indication that the economy regained momentum in the third quarter after a lacklustre first-half performance.

The Commerce Department said retail sales increased 0.6 per cent after declining 0.2 per cent in August. Sales were up 2.7 per cent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales edged up 0.1 per cent last month, reversing August’s 0.1 per cent drop. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

“We see nothing in the broader picture to raise any concerns about the health of consumption in the period ahead, as we continue to see tightening labour markets and an uptrend in wage gains as supporting such spending,” Anthony Karydakis, chief economic strategist at Miller Tabak in New York, said.

Economists had forecast overall retail sales increasing 0.6 per cent and core sales advancing 0.4 per cent last month.

Minutes of the Fed’s September 20-21 policy meeting published on Wednesday showed several officials believed it would be appropriate to increase interest rates “relatively soon” if the economy continued to gain strength.

The US central bank raised its benchmark overnight interest rate last December and has held it steady since, largely because of concerns over low inflation.

But inflation appears to be rising steadily. In a separate report, the Labor Department said its producer price index (PPI) for final demand increased 0.3 per cent last month after being unchanged in August. In the 12 months through September, the PPI jumped 0.7 per cent, the biggest increase since December 2014.

The PPI was flat in the 12 months through August.

A 0.7 per cent increase in the cost of goods, including energy, accounted for more than three quarters of the rise in final demand prices.

Producer prices are rising as some of the drag from the dollar’s past surge starts to ease. The dollar rally appears to have peaked early this year and oil prices having pushed off multi-decade lows, which economists expect could allow inflation to gradually rise toward the Fed’s 2 per cent target.

US stock futures pared gains slightly after the data. The dollar held gains, while US Treasuries trimmed losses.

The Atlanta Fed is currently forecasting the economy growing at a 2.1 per cent annualised rate in the third quarter after a 1.4 per cent expansion pace in the second quarter.

Auto sales rose 1.1 per cent last month after slipping 0.3 per cent in August. Retail sales were also boosted by receipts at service stations, which jumped 2.4 per cent as gasoline prices increased. Sales at online retailers rose 0.3 per cent.

Despite core retail sales rising modestly last month, households are boosting discretionary spending. Sales at restaurants and bars advanced 0.8 per cent, the largest gain since February, and receipts at sporting goods and hobby stores surged 1.4 per cent.

There were also strong increases in sales at furniture and building material stores. But sales at electronics and appliance outlets fell 0.9 per cent and receipts at clothing stores were flat.