WASHINGTON – An increase in shopping last month during the partial government shutdown suggests that the U.S. economy may be more resilient than some have feared.
Retail sales rose 0.4 percent in October, the Commerce Department said Wednesday, after being flat the previous month. The increase showed that many consumers remain willing to spend as the all-important holiday shopping season nears.
At the same time, other data released Wednesday point to an economy that’s still struggling to reach full health:
• Sales of existing homes fell 3.2 percent last month from September, the National Association of Realtors said. Higher mortgage rates and a shortage of homes on the market contributed to the drop-off. So did delays by potential homebuyers during the government shutdown.
• Businesses boosted their stockpiles 0.6 percent in September, the Commerce Department said. Some economists worry that businesses may slow their stockpiling if consumer demand falters at the end of the year. If that happened, JPMorgan Chase economist Daniel Silver said it could exert a “significant drag on growth.”
But the upturn in retail sales last month was a positive surprise. Analysts had speculated that retail sales would be unchanged in October, slowed by the 16-day partial government shutdown and by cheaper gasoline that would mean less money spent at the pump.
Whatever money many consumers saved on gas in October they spent elsewhere. Excluding sales at service stations, retail spending rose 0.5 percent. Sales of furniture, electronics, appliances and clothing all showed solid gains.
Congress likely blunted some of the impact of the shutdown by guaranteeing back pay for 800,000 furloughed federal workers.
“There could be the possibility that all those furloughed workers knew they were going to be paid, so they may have taken the opportunity to take a minivacation and go shopping,” said Jennifer Lee, senior economist at BMO Capital Markets.
Because consumers fuel about 70 percent of U.S. economic activity, expectations have arisen that the better-than-expected retail sales last month could build momentum for November and December.
Before October’s retail sales report, most analysts predicted that the overall economy would grow at a weak annual rate below 2 percent in the current quarter. But after the report was issued Wednesday, Paul Dales, senior U.S. economist at Capital Economics, boosted his forecast: He thinks additional consumer spending will cause the overall economy to grow at an annual rate between 2 percent and 2.5 percent this quarter.
Coupled with the retail sales was a slight decline last month in consumer prices.
The consumer price index fell 0.1 percent in October, the Labor Department said. A sharp 2.9 percent drop in gasoline prices largely caused inflation to be held in check. Over the past 12 months, inflation has averaged 1 percent, well below the Federal Reserve’s 2 percent target.