Retail sales grew more than forecast in November in what appears to be the best quarter for consumer spending since the recession. Retail spending increased 0.8% in November after an upwardly revised 1.7% gain during October. Strong sales in the first of the two months considered as the holiday season suggest that consumer spending will play an important role in the recovery, which gains speed as the new year approaches.
Sales advanced for a fifth straight month in November, beating economists’ forecasts of a 0.6% increase. Excluding motor vehicles and parts sales which fell 0.8%, retail spending grew 1.2% last month. Sales increased in all major areas such as food and beverages, clothing and sporting goods. Sales at gasoline stations jumped 4%, while that at departmental stores gained 2.8%. Furniture and electronics were among the few commodities whose sales declined.
Wholesale prices grew at the fastest rate in eight months as raw material prices inflated. The producer price index increased 0.8% in November, with food and energy price gains contributing to most of the gains. Excluding the more volatile food and energy prices, the index gained a modest 0.3%, after shedding 0.6% in October. High unemployment rates keep producers however from passing on these prices to retailers.
Along with sales, business inventories in the US also expanded, growing 0.7% in October. Manufacturers’ inventories grew 0.9% in October but despite increase in retail sales, retail inventories contracted by 0.6%, mainly due to a fall in automobiles stock. Goods held wholesalers increased 1.9%.
As investors eagerly await the Fed meeting decision today, economists do not expect the statement to change a lot from last time. They will likely point to an increasing need to sustain the recovery as it gains momentum, and hence signal a continued commitment to QE2.
Stocks erased its losses from yesterday and were trading higher on increased retail sales. The S&P improved 0.4% and was last seen at 1245, and NASDAQ followed suit to trade around 2634 at about 11:40 AM EST. Yields climbed across the curve. The benchmark 10-Yr note traded 10 basis points higher at 3.38%, while the 2-yr yield gained 3 bp to 0.61%.