November retail sales fall short
By Andrea Hopkins
Tue Dec 13, 3:14 PM ET
WASHINGTON (Reuters) - U.S. retail sales rose a smaller-than-expected 0.3 percent in November but fell when excluding a surge in auto purchases, setting the stage for what could be a disappointing holiday shopping season, government data showed on Tuesday.
While sales were not as strong as some had hoped, much of the weakness was due to a 5.9 percent drop in sales at gasoline stations in November -- a direct result of the decline in gas prices last month and hardly bad news for consumers.
"While the drop in gasoline prices makes these sales figures look bad, it is of course good news for spending in real terms, which is what really counts," said Paul Ashworth, senior international economist at Capital Economics.
Analysts at Global Insight estimate that gas prices fell 18 percent last month, which allowed consumers to cut spending on gasoline and increase spending elsewhere.
"Excluding autos, spending growth looks healthy -- not a blockbuster holiday season, but far better than it appeared a couple of months ago when gasoline prices were over $3 per gallon," economist Nigel Gault said.
When the drop in sales at gasoline stations is excluded, retail sales rose 1.0 percent in November.
Sales of motor vehicles and parts rose for the first time since July, surging 2.6 percent. But without the auto sales, retail demand fell 0.3 percent, the Commerce Department said. That was the first decline since April 2004.
Both overall sales and sales outside of the auto sector were weaker than expected. Wall Street economists had forecast a 0.5 percent rise in retail sales last month, and a 0.1 percent increase excluding autos.
"A report like this will continue to fuel the debate about how strong consumer spending will be over the holiday season," said Alan Gayle, a managing director at Trusco Capital Management in Atlanta.
Financial markets took most of their direction on Tuesday from the Federal Reserve's move to raise interest rates. U.S. Treasury bond prices rose, the dollar fell and the stock market rallied immediately after the rate increase as investors bet the central bank had edged closer to ending its 1-1/2 year tightening campaign.
October sales were also revised higher, helping take some sting out of the disappointing result. Total sales rose 0.3 percent that month, up from the 0.1 percent decline initially reported.
WEAK FOURTH QUARTER
Still, with October and November sales weaker than expected, analysts said there could well be an outright decline in retail sales in the fourth quarter -- which in turn would hurt economic growth in the final three months of 2006.
"This was a disappointing number relative to expectations and certainly consistent with the idea that consumer spending is going to be a much smaller contributor to economic growth in the fourth quarter than in the third," said Chris Probyn, chief economist at State Street Global Advisors in Boston.
Several categories saw a rise in sales, however. Demand for electronics and appliances rose 0.5 percent, building materials and garden equipment sales rose 1.9 percent, food sales rose 0.4 percent and demand for clothing edged 0.2 percent higher.
Sales of furniture fell 0.3 percent, while sales at sporting goods, hobby, book and music stores were down 0.6 percent.
Other retail data released on Tuesday were mixed.
A report by the International Council of Shopping Centers and UBS said chain store sales rose 0.9 percent last week, while a competing report by Redbook Research showed chain store sales fell 0.3 percent in the second week of December.
"Seasonal business remains below expectations," Redbook said. "An early-December lull was factored into most sales plans for the month, so retailers remained cautiously optimistic as they continued to sit out the pre-Christmas wait."
A second Commerce Department report showed U.S. business inventories rose a smaller-than-expected 0.3 percent in October, while sales rose 0.8 percent. The inventories-to-sales ratio, a measure of how long it would take to deplete stocks at the current sales pace, remained at a record low 1.25 months.
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