WASHINGTON (Reuters) - U.S. retail sales increased more than expected in October, likely as Americans started their holiday shopping early to avoid empty shelves amid shortages of some goods because of the ongoing pandemic, giving the economy a lift at the start of the fourth quarter.
Retail sales surged 1.7% last month, the Commerce Department said on Tuesday. Data for September was revised higher to show retail sales increasing 0.8% instead of 0.7% as previously reported. Sales have now risen for three straight months.
Economists polled by Reuters had forecast retail sales advancing 1.4%. Estimates ranged from as low as a 0.1% dip to as high as a 2.8% increase.
Unit motor vehicle sales increased in October for the first time in six months. The tight supply of automobiles because of a global semiconductor shortage has driven up motor vehicle prices, contributing to the rise in retail sales last month. Retail sales also received a boost from higher gasoline prices.
Consumer prices soared 0.9% in October. Shortages could have led consumers to anticipate even higher prices and shop early.
"Strapped supply and retailers encouraging shoppers to start holiday shopping early suggest some spending was likely brought forward," said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina. "Regardless, holiday sales are almost certainly going to set a record year-ago gain even as retailers face a unique set of challenges."
The nearly two-year long coronavirus pandemic has caused an acute shortage of labor, delaying deliveries of raw materials to factories as well as shipments of finished goods to markets.
Excluding automobiles, gasoline, building materials and food services, retail sales shot up 1.6% last month after increasing 0.5% in September. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Retail sales are mostly made up of goods, with services, including healthcare, education and hotel accommodation, making up the remaining portion of consumer spending.
Even when adjusted for inflation, retail sales rose solidly last month, leaving the pace of growth in consumer spending above the meager 1.6% annualized rate logged in the third quarter. The fading headwind from a surge in COVID-19 infections over summer is reviving economic activity.
The report added to strong employment growth in October and an acceleration in services sector activity in painting an upbeat picture of the economy after GDP increased at a 2.0% rate last quarter, the slowest pace in more than a year.
Hiring is accompanied by an acceleration in wages as companies scramble to fill 10.4 million open jobs as of the end of September. But high inflation is wiping out those gains for some workers, which helped to sink consumer sentiment to a 10-year low in early November.
Still, economists do not believe the tumble in sentiment reported by the University of Michigan last Friday will undermine consumer spending, noting that other sentiment measures were above early-pandemic lows. Americans amassed at least $2 trillion in excess savings during the pandemic.
"This continuing weakness in confidence does not warrant any immediate change to our near-term forecast for consumer spending since other factors are more important, particularly real disposable income, which is holding steady at a high level," said Scott Hoyt, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "Support also comes from strong job growth, plentiful jobs, and abundant available cash for many."