Retail sales up for third month; economy keeps lid on prices

WASHINGTON (AP) — Americans spent more money on cars, furniture and at hardware stores to boost retail sales to a third monthly increase in September, and the sluggish economy is keeping inflation away.

Retail sales rose 0.6% in September, the Commerce Department reported Friday. That followed an even better 0.7% August increase, the biggest advance since March.

Excluding autos, sales rose 0.4% in September after a 1% August gain.

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• The Labor Department said separately that the consumer price index rose 0.1% in September, after a 0.3% rise in August. Economists polled by Thomson Reuters expected a larger increase.

• In a third report, the Commerce Department said that business inventories rose 0.6% in August after a 1.1% rise in July. It was the eighth consecutive monthly gain. Total business sales were up a slight 0.1% following a much stronger 0.8% advance in July. The continued strong gains in inventories are seen as an encouraging sign that the economic recovery will continue. Inventory rebuilding has provided critical support as the economy struggles to emerge from a deep recession. Increased orders to fill empty store shelves have translated into higher production at the nation's factories.

• Elsewhere, a small drop in the University of Michigan/Reuters consumer sentiment survey offset signs of growth in retail sales and manufacturing activity in New York. Economists polled by Thomson Reuters expected the preliminary reading on October consumer sentiment to rise slightly. Manufacturing activity in New York surged in October and pointed to continued expansion in the coming months.

The string of increases in retail sales since July followed declines in May and June. Those had raised worries that the country could be in danger of toppling back into recession. Economists caution that while the economy is growing, it will be sub-par as long as households face high unemployment and weak income growth.

Consumer spending is closely watched because it accounts for 70% of economic activity.

Auto sales, which had fallen 0.5% in August, rose 1.6% in September, the best showing since March. Economists had predicted the September increase in auto sales based on reports from automakers. Those reports showed sales during the month had come in at an annual rate of 11.76 million units, slightly better than the August pace. Still, it was far below the pre-recession level of 16 million sales in 2007 — just before the recession began.

The strength outside of autos came in big gains at furniture stores. Sales in that category rose 0.5%, the best showing since July. Electronic and appliance stores posted a 1.5% rise, the best since February. Sales at hardware stores rose 0.6%, the biggest increase since April.

Sales at general merchandise stores, a broad category that includes department stores and the nation's big chains such as Wal-Mart and Target, showed no increase last month. But the flat reading followed a 0.5% jump in August, which had been fueled by back-to-school shopping and discounting by many retailers.

Sales at specialty clothing stores dropped 0.2% in August after posting a 0.5% rise in July.

Even with the solid overall gain in September, analysts did not view it as a sign the economy is getting set to take off.

The concern is that consumer spending will not rebound until households have the income growth to spend at a faster pace. And the income growth will not come until businesses start hiring back laid-off workers at a stronger clip.

The rise in the consumer prices index was driven by higher costs for gasoline and food.

Outside of food and energy, core the consumer price index was unchanged for the second straight month. And in the past 12 months, core prices rose only 0.8%, the smallest yearly gain in more than 49 years.

The sluggish economy is keeping a lid on prices. Consumers are holding back on spending, with unemployment high and wages stagnant. That makes it difficult for retailers to pass on any price increases.

The modest price increases mean that 58 million Social Security recipients won't receive any cost-of-living increases in their benefits next year, for the second straight year. It will be only the second year without an increase since automatic adjustments for inflation were adopted in 1975.

A 1.6% increase in the price of gas drove energy costs higher by 0.7%. And the prices of meat, cereals and baked goods, and dairy products also rose, the department said.

Clothing prices fell by 0.6% in September, the second straight drop. And weakness in the housing market sent housing prices down 0.1%, according to the government's index. That measure also includes hotel prices, which dropped by 0.2% in September.

The flat reading on core consumer prices could raise fears of deflation, a widespread and crippling drop in prices, wages and the value of homes and investments. Deflation concerns arose earlier this year, after consumer prices fell for three straight months in the spring and early summer.

But few economists expect deflation to take hold. Fed officials said last month that "inflation remained subdued," according to the minutes from the meeting, which were released earlier this week. At the same time, they saw "only small odds of deflation." ... -cpi_N.htm