Shoppers hit the stores, lift September retail sales 1.1%

A woman shops at The Avenues Mall in Jacksonville, Fla., in this Sept. 6 photo. Economists say the gains in retail sales in August and September could bring stronger economic growth for the second half of the year.
A woman shops at The Avenues Mall in Jacksonville, Fla., in this Sept. 6 photo. Economists say the gains in retail sales in August and September could bring stronger economic growth for the second half of the year.

— Americans spent more money at retailers in September - a buying surge that reflected growing consumer confidence and was aided by the launch of the latest iPhone.

Retail sales jumped 1.1 percent last month after a revised 1.2 percent increase in August, producing the best back-to-back showing in two years, according to figures released Monday by the U.S. Commerce Department.

And a second Commerce Department report released the same day indicated that unexpected strength in sales may be starting to drain stockpiles of goods as inventories rose at a slower pace in August.

“The consumer is back,” said Joel Naroff, chief economist at Naroff Economic Ad-visors. “They are not spending money like it is going out of style, but they are spending at a more normal pace that is consistent with a moderately growing economy.”

The retail-sales increase comes only 10 days after a report that unemployment fell to its lowest level since President Barack Obama took office. And it follows a survey last week by the University of Michigan that showed consumer confidence rose in early October to a five-year high.

Stocks climbed after the retail report. The Dow Jones industrial average gained 95.38 points to close up at 13,424.23. Broader indexes also rose.

Businesses appeared to be banking on a resurgent consumer.

The Commerce Department’s inventory report showed companies increased their stockpiles in August by 0.6 percent after a slightly larger gain in July. Companies typically step up restocking when they anticipate sales will rise in coming months.

“Businesses are operating in a fairly lean environment right now,” Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities in New York, said before the report. “Definitely there’s hesitancy about these other economic issues that I think is weighing on inventory accumulation.”

The gain in inventories compared with the median forecast of 47 economists surveyed by Bloomberg News that called for a 0.5 percent increase. Estimates ranged from gains of 0.2 percent to0.7 percent.

At the current sales pace, businesses had enough goods on hand to last 1.28 months, the same as in July.

The retail-sales report is the government’s first look at consumer spending in September. Consumer spending is critical because it drives nearly 70 percent of economic activity.

In September, retailers saw gains in almost every major category. That contrasted with August’s retail sales, which rose almost entirely on the strength of auto sales and higher gas prices.

Sales of electronics and appliances last month swelled 4.5 percent, in part because of iPhone sales. Sales at auto dealers increased 1.3 percent. Building materials and garden supplies, furniture and clothing sales all gained, too.

Some of the September increase also reflected higher food and gasoline prices. If those prices continue to rise, consumers could cut back elsewhere, and that could keep growth from accelerating.

But economists pointed to a key measure of sales that rose a solid 0.9 percent without counting autos and gas station sales. Many observers say that shows consumers are not too worried.

“We saw a cautious consumer in August because they had to spend more on gasoline,” said Chris G. Christopher Jr., senior economist at IHS Global Insight. “Now in September, the consumer is starting to spend more on other items. Consumers are feeling better.”

Christopher said the introduction of the new Apple iPhone was definitely a factor in September. He estimated that 4 million iPhones were sold in the United States in the latter half of September.

The entire gain from electronics and appliance stores added only about 0.1 of a percentage point to the September retail-sales increase. So even excluding that gain, sales were solid, Christopher said.

Economic growth was anemic in the first half of the year, held back by weaker consumer spending. The latest figures suggest consumers are shaking off high unemployment and the threat of tax increases that could come next year if Congress fails to reach a deal to prevent the economy from going over the “fiscal cliff.”

Naroff said that threat has kept businesses from stepping up hiring. But he estimated that American consumers will help the economy emerge from the malaise that clouded the spring.

He predicts growth accelerated in the July-September quarter to a 2.6 percent annual rate - double the growth rate from spring. And he expects consumers will help the economy grow at a 3.2 percent rate in the final three months of the year.

“What the recent economic reports suggest is that once the fiscal-cliff issue is cleared, payroll and economic growth should surge regardless of the election results,” Naroff said.

The unemployment rate dropped to 7.8 percent last month. It was the first time the rate has been below 8 percent since January 2009.

One caveat emerged from a survey of households: Many of the new jobs were part time. A separate survey of employers showed only modest job growth.

Still, the economy has added an average of 146,000 jobs a month in the July-September quarter - more than twice the monthly pace in the April-June quarter.

More jobs and lower unemployment have consumers feeling more optimistic. The University of Michigan’s survey of consumer sentiment released Friday showed a reading of 83.1 for October. That’s up from 78.3 in September and the highest level since September 2007 - three months before the start of the recession.

The retail-sales data had electronics dealers showing a 4.5 percent jump in sales, the biggest gain since October 2011. The introduction of the Apple Inc. iPhone 5 at the end of the month likely helped spur demand.

Spending increased 0.6 percent at clothing stores and0.3 percent at general merchandise stores.

Retailers benefited from demand for back-to-school items, with September same store sales topping analysts’ estimates at discount and specialty-apparel chains. Target, the second-biggest U.S. discounter, had a 2.1 percent gain from a year earlier, and TJX, the owner of T.J. Maxx and Marshalls, reported a 6 percent increase. Americans have also displayed their confidence by spending more on big-ticket items.

Retailers’ inventories, the only part of Monday’s stockpile report not previously released, climbed 0.6 percent as sales jumped 1.3 percent.

Home sales are up from last year, which has lifted home prices. When home prices rise, Americans tend to feel wealthier and spend more.

U.S. auto companies reported that sales rose 13 percent in September from a year earlier to nearly 1.2 million. Analysts think sales could hit 14.3 million this year, up from 12.8 million last year.

However, wholesale inventories, which account for about 30 percent of all business stockpiles, climbed 0.5 percent in August as sales advanced, Commerce Department data showed. Factory inventories, which comprise about 38 percent of the total, rose 0.6 percent in August.

Manufacturing in the New York region contracted in October for a third-straight month, indicating the pickup in spending has yet to filter through to factories in that part of the country, another report released Monday showed. The Federal Reserve Bank of New York’s general economic gauge, known as the Empire State index, rose to minus 6.2 from minus 10.4 in September, which was the lowest since April 2009.

The Federal Reserve’s aggressive new policies could lower long-term interest rates even further, another factor that could keep sales rising.

“Consumers still are facing a lot of problems,” Christopher said. “But we are seeing some positive signs.” Information for this report was contributed by Martin Crutsinger of the Associated Press and Michelle Jamrisko of Bloomberg News.

Front Section, Pages 1 on 10/16/2012

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