Some Good News: September Retail Sales Rose On Autos

U.S. consumers stepped up their spending on retail goods in September, a hopeful sign for the sluggish economy.

They spent more on autos, clothing and furniture last month to boost retail sales 1.1 percent, the Commerce Department said Friday, making it the largest gain in seven months.

Domestic automakers had a strong month. Chrysler Group led the pack with U.S. sales up 27 percent from a year earlier. GM sales rose 20 percent and Ford Motor Co. increased 9 percent, according to the Los Angeles Times.

Auto sales rose 3.6 percent to drive the overall increase. Still, excluding that category, sales increased 0.6 percent (a small but welcomed increase).

Stronger consumer spending could help alleviate concerns that the economy is at risk of a continued recession. Consumer spending is closely watched because it accounts for 70 percent of economic activity.

After the new figures were released, some life was breathed into the markets. Stocks rose after the release of the report.

"Reports of the consumer's demise have been greatly exaggerated," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn in a recent Reuters article.

Another hopeful economic indicator is found in a separate Commerce report that shows that businesses added to their stockpiles for a 20th consecutive month in August while sales rose for a third straight month.

The increase suggests businesses are a little more confident about the economy to keep stocking their shelves.

"It looks like third-quarter GDP is going to be better than the first and second quarter combined," said John Canally, an investment strategist and economist for LPL Financial in Boston told Reuters.

The increase "shows that households are not completely down and out," said Paul Dales, senior U.S. economists for Capital Economics. Dales said the data correspond with an annual growth rate of 2 percent for consumer spending growth in the July-September quarter.

"Obviously consumers are still willing to go out and shop," said Gary Thayer, a strategist at Wells Fargo Advisors in St. Louis, Missouri. "If the economy takes a clear turn for the worse we would expect sales to suffer, but at least this time the shock to confidence has not derailed consumer spending."

However, Dales cautioned that weak hiring will likely prevent consumers from spending at this rate on a month-to-month basis.

"Sales growth is unlikely to remain this strong," he said. "So although a recession has become less likely, households still can't be relied on to drag the US economy out of its continued malaise."

Chris G. Christopher Jr., senior economist at IHS Global Insight, said the increase in spending was an improvement from the first half of the year. Still, he said overall growth was not enough to generate significant hiring gains.

"Do not break out the champagne. Things seem better on the consumer and retail fronts, but consumers still have many problems," he said.

The September gains were broad-based:

• Department stores sales increased 1.1 percent, a big turnaround from August when sales had fallen 0.5 percent. The drop was blamed in part on Hurricane Irene disrupting shopping along the East Coast.
• A larger category of general merchandise stores, which includes big-chain retailers including Wal-Mart and Target, showed a 0.7 percent rise last month after no gain in August.
• Specialty clothing stores sales rose 1.3 percent, after a 0.4 percent August drop.
• Sales were up 1.1 percent at furniture stores but edged down a slight 0.1 percent at hardware stores. That surprised economists, who expected more traffic from people seeking to repair damage from the hurricane.
• Gas station sales rose 1.2 percent.
• The overall economy grew at an annual rate of 0.9 percent in the first six months of the year.

High unemployment and steep gasoline prices forced many consumers to cut back on spending this spring. Without more jobs or higher pay increases, they are likely to keep spending cautiously. However, some are maintaining a more optimistic attitude and the September report has helped.

“The American consumer and the retail industry continue to lead this recovery, and strong September retail sales are just what the economy needs right now,” Matthew Shay, NRF president and CEO, said in a recent Forbes article.

“The unexpectedly strong sales increase in September may work to dampen fears of a double-dip recession and could indicate an economic and employment rebound,” he said.

See the full report here.

The Associated Press contributed to this story.