Retail Sales Rise, Boost Economic Outlook

By Lucia Mutikani

WASHINGTON -- U.S. retail sales rose solidly in November, adding to signs of a strengthening economy that could draw the Federal Reserve closer to reducing the pace of monetary stimulus.

The upbeat economic picture was clouded somewhat by another report Thursday showing the biggest jump in a year in first-time applications for unemployment benefits last week.

The Commerce Department said retail sales increased 0.7 percent last month as Americans bought automobiles and a range of other goods. November's retail sales increase was the largest in five months and followed a 0.6 percent rise in October.

Economists polled by Reuters had forecast retail sales, which account for about 30 percent of consumer spending, advancing 0.6 percent after a previously reported 0.4 percent gain in October.

"It should provide more confidence to the Fed that the economic recovery has emerged from the political-induced uncertainties of recent months essentially unscathed and reinforce the expectation for the recent improved performance in the data to be sustained," said Millan Mulraine, senior economist at TD Securities (TD) in New York.

So-called core sales, which strip out automobiles, food services, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, %VIRTUAL-article-sponsoredlinks%rose 0.5 percent after gaining 0.7 percent in October. That suggested consumer spending would likely step up from a two-year low touched in the third quarter.

Spending is being supported by solid employment gains and steady income increases, which could help limit the drag on fourth-quarter GDP growth from an expected attempt by business to reduce inventories after building them up in the July-September quarter.

But businesses are showing no signs of pulling back just yet. In a second report, the Commerce Department said business inventories increased 0.7 percent in October, the largest gain since January, after rising 0.6 percent in September.

Lower gasoline prices are also helping, though they are a drag on retail sales figures, which aren't adjusted for inflation.

U.S. stock index futures reversed losses on the retail sales data, while Treasury debt prices extended losses. The dollar rose against the euro and the yen.

But the firming growth tone was tempered somewhat by a separate report from the Labor Department showing initial claims for state unemployment benefits surged 68,000 to a seasonally adjusted 368,000 last week.

That was the largest weekly increase since November 2012 and surpassed economist expectations for a rise to only 320,000. However, the four-week moving average for new claims, which irons out week-to-week volatility, rose only 6,000, suggesting that a recent strengthening of the jobs market remains intact.

"I would be heavily dismissive of the latest number. It was heavily distorted by the holiday. You had a low-ball number last week and a high one this week. You have to take the two weeks together," said Jacob Oubina, senior economist at RBC Securities in New York.

Seasonal Variations

A Labor Department analyst said seasonal volatility, including a late Thanksgiving, made it difficult adjusting the data for seasonal variations.

Nonfarm payrolls increased solidly in October and November. The unemployment rate hit a five-year low of 7 percent in November.

The steady stream of fairly upbeat data should give the Fed cover to start cutting back its monthly $85 billion bond buying program soon, and could fuel some speculation a move could come as early as the central bank's meeting next week.

Most economists, however, expect the Fed to hold off until January or March. Another report from the Labor Department showed import prices fell for a second straight month in November. The general lack of inflation pressures is a wild card in the Fed's decisions on its monetary stimulus.

Retail sales last month were buoyed by a 1.8 percent jump in receipts at auto and parts dealers. That helped to offset a 1.1 percent drop in sales at gasoline stations.Receipts at building materials and garden equipment stores rebounded 1.8 percent after falling 1.5 percent in October.

There were also gains in receipts at furniture, electronics and sporting goods shops, among others. Sales at electronics and appliance stores rose 1.1 percent, while furniture store sales rose 1.2 percent. However, receipts at clothing stores fell 0.2 percent after rising 2.6 percent in October.