Bloomberg News

Retail Sales Probably Dropped in October: U.S. Economy Preview

November 11, 2012

Retail Sales Probably Dropped in October

Same-store sales at Macy’s Inc., the second-biggest U.S. department-store chain, rose 4.1 percent, topping the 4 percent average estimate of analysts surveyed by Retail Metrics Inc. Photographer: Scott Eells/Bloomberg

Sales at U.S. retailers probably fell in October for the first time in four months as consumers in the Northeast stayed away from auto dealers and shopping centers before and after superstorm Sandy, economists said before a report this week.

The projected 0.2 percent drop in purchases would follow a 1.1 percent gain in September, according to the median forecast of 72 economists surveyed by Bloomberg before Nov. 14 figures from the Commerce Department. Other reports may show the cost of living climbed more slowly and factory output rose.

General Motors Co. (GM:US) and Ford Motor Co. (F:US) are among companies saying the drop in demand will probably be temporary as brighter job prospects, rising home prices and improving finances boost household confidence heading into the holiday shopping season. Sustained gains in consumer spending, which accounts for about 70 percent of the economy, are needed to overcome a slowdown in business investment.

“As long as the labor-market recovery is ongoing, then we’re going to see unremarkable, but steady, growth in consumer spending,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “Consumers are feeling better.”

The slowdown comes after retail sales in September and August marked the best back-to-back showing since late 2010.

Growing confidence may be playing a role. The Thomson Reuters/University of Michigan consumer sentiment gauge climbed to a five-year high this month, a report last week showed.

September Sales

Part of that jump in purchases was the result of households snapping up Apple Inc.’s new iPhone 5. Support also came from car and light truck sales, which climbed in September to a 14.9 million pace, the fastest in more than four years, according to figures from Ward’s Automotive Group.

Those gains weren’t repeated in October, when Sandy, the biggest Atlantic storm in history, prevented potential shoppers from getting to stores. Auto demand dropped to a 14.2 million pace last month after Sandy slammed the East Coast during the auto industry’s busiest time of the month. Carmakers have said those sales should be made up by the end of the year.

Some retailers reported a pickup in October demand even with the adverse weather. Same-store sales at Macy’s Inc., the second-biggest U.S. department-store chain, rose 4.1 percent, topping the 4 percent average estimate of analysts surveyed by Retail Metrics Inc. Kohl’s Corp.’s same-store sales climbed 3.3 percent, beating estimates for a 0.8 percent gain.

Gainers, Losers

The storm also didn’t affect all retailers the same way. Stockpiling before Sandy struck probably boosted sales at grocery, drug and home-improvement stores, just as it hurt demand at department stores and merchants in malls, according to economists at Morgan Stanley in New York.

Economists project the retail sales category used to calculate gross domestic product, which excludes auto dealers, building-material stores and service stations, will show a 0.4 percent gain in October following a 0.9 percent increase the prior month.

The Consumer Discretionary Select Sector SPDR Fund (XLY:US), which includes companies like Tiffany & Co. and Best Buy Co., has climbed (XLY:US) about 16 percent this year, as spending has advanced.

Gains in household purchases will also help manufacturing, which is receiving fewer orders from business investment cools and economies in Europe and Asia slow. Output at the nation’s factories, mines and utilities probably rose 0.2 percent in October after a 0.4 percent gain the previous month, economists forecast a Federal Reserve report will show on Nov. 16.

Gas Prices

A retreat in gasoline prices may also be helping to underpin household confidence and spending. On Nov. 15, a Labor Department report may show the consumer-price index rose 0.1 percent in October after a 0.6 percent gain the prior month, according to the survey median, restrained by a drop in fuel.

The cost of a gallon of regular gasoline at the pump averaged $3.51 on Oct. 31, a three-month low and down from a recent peak of $3.87 in mid September.

As the holiday shopping seasons begins, Hasbro Inc. (HAS:US)’s retail customers are “ looking forward to a good year,” David Hargreaves, chief operating officer of the Pawtucket, Rhode Island-based toymaker, said during a call with analysts on Oct. 22. “Certainly consumer demand has held up pretty well. I think they’re sort of cautiously optimistic.”

                       Bloomberg Survey
==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
Retail Sales MOM%        11/14      Oct.      1.1%     -0.2%
Retail ex-autos MOM%     11/14      Oct.      1.1%      0.2%
Retail control MOM%      11/14      Oct.      0.9%      0.4%
PPI  MOM%                11/14      Oct.      1.1%      0.2%
Core PPI MOM%            11/14      Oct.      0.0%      0.1%
PPI  YOY%                11/14      Oct.      2.1%      2.6%
Core PPI YOY%            11/14      Oct.      2.3%      2.4%
CPI  MOM%                11/15      Oct.      0.6%      0.1%
Core CPI MOM%            11/15      Oct.      0.1%      0.1%
CPI  YOY%                11/15      Oct.      2.0%      2.1%
Core CPI YOY%            11/15      Oct.      2.0%      2.0%
Ind. Prod. MOM%          11/16      Oct.      0.4%      0.2%
==============================================================

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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