Retail sales in US post small rise

Photo: Retail sales in US post small rise

Despite all the problems - a steep slump in housing, tighter credit conditions and soaring energy costs – retail sales in the United States managed a small increase in October.

The Commerce Department reported Wednesday that retail sales edged up 0.2 percent in October compared to the previous month. It was the weakest showing since a 0.1 percent rise in August and represented a significant slowdown from a 0.7 percent jump in September sales.

The weakness last month reflected a 0.5 percent drop in sales at department stores, where merchants were hurt by a warmer-than-normal October which depressed sales of winter clothing.

Retailers are facing bleak prospects for Christmas with consumer confidence plunging in the face of soaring gasoline prices, slumping home sales and tougher lending standards being imposed by financial institutions in the wake of a serious credit crunch.

Consumer spending is closely watched since it accounts for two-thirds of total economic activity. The overall economy is expected to slow dramatically in the current quarter and the first three months of next year, a period which many economists see as the maximum danger period for a possible recession.

Analysts believe that overall economic growth will slow to around 1.5 percent at an annual rate in the final three months of this year, down from a 3.9 percent rise in the July-September quarter, as the housing slump continues to exert a toll on the economy.

Federal Reserve Chairman Ben Bernanke told the congressional Joint Economic Committee last week that the Fed was looking for a significant slowdown in coming months due to a longer-than-expected housing slump. But he said economic growth should rebound by mid-2008.

In a separate report, the Labor Department said that inflation at the wholesale level was well under control in October with prices edging up by 0.1 percent, far below the 1.1 percent jump in September.

The improvement reflected the fact that energy prices fell by 0.8 percent last month after having soared by 4.1 percent in September. However, that improvement is expected to be short-lived, given that crude oil costs have soared in recent days, trading briefly above $98 per barrel last week.

Food costs were up 1 percent in October after an even bigger 1.5 percent rise in September.

Core wholesale inflation, which excludes food and energy, was well-contained last month, showing no change after a tiny 0.1 percent gain in September.