U.S. retail sales rebound on autos, building materials

WASHINGTON (Reuters) – U.S. retail sales rebounded sharply in October as purchases of motor vehicles and building materials surged, likely driven by recovery efforts in areas devastated by Hurricane Florence.

The report on Thursday from the Commerce Department also showed broad gains in sales ahead of the holiday shopping season, which bodes well for consumer spending and the overall economy as the fourth quarter gets under way.

Retail sales increased 0.8 percent last month after a downwardly revised 0.1 percent dip in September. Economists polled by Reuters had forecast retail sales increasing 0.5 percent in October after the previously reported 0.1 percent gain in September. Sales rose 4.6 percent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3 percent last month. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Data for September was revised lower to show core retail sales rising 0.3 percent instead of gaining 0.5 percent as previously reported. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is being underpinned by a strong labor market, characterized by a 3.7 percent unemployment rate.

The lowest unemployment rate in nearly 49 years is boosting wages, with annual wage growth recording its biggest increase in 9-1/2 years in October. Jobs market strength was underscored by a separate report from the Labor Department on Thursday showing a marginal increase in the number of Americans filing for unemployment benefits last week.

Strong domestic demand and a tightening labor market support views that the Federal Reserve will increase interest rates in December for the fourth time this year. The U.S. central bank last Thursday kept rates unchanged, but noted that the labor market “continued to strengthen and…economic activity has been rising at a strong rate.”

The dollar held at higher levels against a basket of currencies after Thursday’s data, while U.S. Treasury yields fell.

The trend in retail sales, if sustained, could keep the economy on a solid growth path even as business investment is slowing, the trade deficit is expected to deteriorate further and the housing market continues to weaken.

Consumer spending expanded at its fastest pace in nearly four years in the third quarter. The economy grew at a 3.5 percent annualized rate in the July-September quarter.

While the Commerce Department said it could not isolate the impact of Hurricane Florence, which lashed North and South Carolina in mid-September, on the retail sales, the storm probably boosted purchases of automobiles and building materials last month.

Auto sales jumped 1.1 percent last month likely as residents in areas affected by Florence replaced damaged cars. Auto sales fell 0.1 percent in September. Sales at building material stores surged 1.0 percent in October.

There were also increases in sales at clothing stores, online retailers and service stations last month. Americans also spent more on hobbies and at bookstores, while cutting back on furniture purchases.

But spending at restaurants and bars slipped 0.2 percent, likely hurt by Hurricane Michael, which soaked the Florida Panhandle in mid-October. Sales at restaurants and bars dropped 1.5 percent in September.