Retail data ease pressure on Fed

US retail sales held up last month in a sign that consumers are continuing to spend despite a worsening housing market and turbulence in financial markets.

Underlying sales grew by 0.2 per cent in September while high gas prices and purchases of autos also pushed up top line demand by a better-than-expected 0.6 per cent, the Commerce Department said.

The figures add to signs that the US economy grew at a relatively healthy pace throughout the credit squeeze and will ease pressure on the Federal Reserve to cut interest rates again later this month.

”It should ameliorate concerns that the consumer will be quick to keel over in the wake of credit market turbulence,” said Alan Ruskin, an analyst at RBS.

”What is clear is that as long as consumer spending is only slowing moderately, we are heading for a soft landing, since net exports are plainly providing a significant offset to weakness elsewhere,” he added.

While consumers appeared to have helped drive growth in the third quarter, the outlook was more uncertain, said Paul Ashworth, an economist at Capital Economics.

”We suspect (consumption) will weaken considerably going in to next year as falling house prices and a weaker labour market begin to take their toll,” he said.

The sales figures follow reports from major retail chains that sales were disappointing last month, which they largely blamed on unusually warm weather that limited demand for fall clothing.

The government figures also showed weak demand at clothing stores and department stores.

Meanwhile, there were signs that underlying wholesale prices are rising at a modest pace, in a sign Fed policymakers will welcome that inflation is subdued.

Core producer prices increased by 0.1 per cent, although higher energy and food costs pushed headline wholesale inflation up 1.1 per cent after a decline of 1.4 per cent in August.

”Overall, the reports make it more likely that the Fed will leave rates unchanged at its next meeting in late October,” said Mr Ashworth.


Retail data ease pressure on Fed

Financial Times
10/12/2007 7:14:23 AM