Consumer Spending Measure Rises, but Auto Sales Tumble

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Consumer Spending
Matt Rourke/AP
By Lucia Mutikani

WASHINGTON -- A gauge of U.S. consumer spending rose in September as Americans likely snapped up Apple's new iPhone and bought leisure goods, but falling sales of automobiles pointed to sluggish economic growth during the third quarter.

Despite the signs of strength, spending could weaken as other data Tuesday showed consumer confidence fell sharply in October. Confidence was hit by a 16-day partial shutdown of the federal government early in this month, which economists expect will hurt growth in the fourth quarter.

Retail sales, excluding automobiles, gasoline and building materials, increased 0.5 percent last month after a 0.2 percent gain in August, Commerce Department figures showed.

The so-called core sales correspond most closely with the consumer spending component of gross domestic product. Economists polled by Reuters had expected core retail sales to increase 0.4 percent in September.

"This report points to continued resiliency in U.S. consumer spending activity," said Millan Mulraine, an economist at TD Securities (TD) in New York. "However, given the drag on confidence from the government shutdown and protracted debt ceiling fight earlier this month, this resiliency is expected to be tested."

In a separate report, the Conference Board, an industry group, said its index of consumer attitudes dropped to a lower-than-expected 71.2 in October from 80.2 in September.

Demand is still not strong enough to ignite worries about inflation. In a third report, the Labor Department said its seasonally adjusted producer price index slipped 0.1 percent last month, the first decline since April, after advancing 0.3 percent in August.

A Reuters survey of economists had forecast prices received by the nation's farms, factories and refineries would rise 0.2 percent in September.

In the 12 months through September, wholesale prices rose 0.3 percent, the weakest reading since October 2009. That compared to a 1.4 percent increase in August.

The tame wholesale inflation reading, coming on the heels of weak home sales and manufacturing production, as well as sluggish hiring, should provide the Federal Reserve with ammunition to maintain monthly bond purchases for a while as it tries to nurse the economy back to health.

Officials from the central bank meet Tuesday and Wednesday to assess the economy and deliberate on monetary policy. They are expected to keep the monthly $85 billion bond purchasing program in place until at least next March, according to a Reuters poll.

But there are some pockets of strength in the economy. Another report showed resilience in the housing market, with single family home prices posting their largest annual gain in more than seven years in August.

The S&P/Case-Shiller composite index of 20 metropolitan areas rose 0.9 percent on a seasonally adjusted basis, beating economists' expectation of a 0.6 percent gain.

Compared to a year earlier, prices were up 12.8 percent, beating economist expectations of 12.5 percent and marking the strongest gain since February 2006, when the increase was 13.8 percent.

Apple Likely Lifted Sales

Core retail sales last month were boosted by a 0.7 percent advance in receipts at electronics and appliance stores.

Economists polled by Reuters had expected core retail sales to increase 0.4 percent in September.

The increase last month probably reflected sales of Apple's (AAPL) new iPhone. Those sales likely boosted receipts at non-store retailers, mostly Internet sites, which increased 0.4 percent in September. Apple said it sold 33.8 million iPhones in the September quarter.

While Americans bought smartphones, they cut back on automobile purchases, with sales at auto dealers falling 2.2 percent, the biggest drop since October last year.

That pushed down overall retail sales, which fell 0.1 percent in September. It was the first decline since March and followed a 0.2 percent gain in August. %VIRTUAL-article-sponsoredlinks%Economists had expected retail sales to edge up 0.1 percent last month.

Households also bought furniture, sporting goods and some building materials and garden equipment. Clothing sales fell 0.5 percent, the biggest drop since April 2012.

While core retail sales implied some strength in consumer spending, that probably won't alter views that economic growth slowed in the third quarter.

Data on home sales, manufacturing production and hiring have all suggested growth took a step back from the second quarter's 2.5 percent annual pace.

A drop in wholesale food prices offset a rise in the cost of energy, depressing overall producer prices in September. Food prices fell 1.0 percent as the cost of processed poultry recorded its biggest decline since February 2011.

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9 Numbers That'll Tell You How the Economy's Really Doing
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Consumer Spending Measure Rises, but Auto Sales Tumble
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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