Retail Sales and Business Inventories Rose in September

U.S. retail and food services sales for August were $363.7 billion, an increase of 0.4% from July and 3.6% above August 2009, the Commerce Department reported. Economists' consensus was for a 0.3% rise. Sales excluding cars, gas and building materials increased 0.6%, two times higher than consensus.

The markets were all modestly higher in midday trading Tuesday, with the Dow Jones industrial average up 25 points to 10,569.

"August retail sales data confirm the pattern in evidence throughout the year--consumers buying when necessary, just not as a leisure time activity. Consumers bought around Easter and now for back-to-school," said Steve Blitz, senior economist with New York-based Majestic Research, in an analyst note.

In a sign of the weak housing market, sales of appliances and furniture fell, Blitz noted, adding that a pattern of flat sales will likely continue into the holiday season.

"Tales of a double-dip [recession] are overdone, but so too are any notions that today's report signifies that the consumer is back, ready to lead the recovery from here. The reality of a deleveraging low-growth economy is long periods of flat sales interrupted by bouts of seasonal buying," he said.

Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, said in an analyst note that sales growth has slowed sharply over the past few months but real consumption should rise nearly 2% in the third quarter.

"Sales ex-autos were boosted by a hefty 1.3% rise in food sales and a 1.9% jump in gasoline sales, thanks to higher prices," Shepherdson said. "Excluding these items and autos, our measure of core sales rose by 0.3%, as signaled by the Redbook chain store sales survey."

The Commerce Department also reported that business inventories rose an adjusted 1.0% in July compared to a 0.5% rise in June. Business sales also were up 0.7% from June, when sales had dropped 0.5% compared to May. Inventories were 2.4% higher than a year ago, and sales were 9.2% higher.

High inventories are good for business when the economy is humming along and consumer demand is high. But in a weak labor market, an inventory surplus can spell trouble for job seekers.

"Rising inventories are important when economic growth is picking up steam, yet accelerating economic growth may not be the case right now," according to a Nasdaq news report. "If it isn't, inventory builds will lead to production slowdowns and in turn slow demand for labor."

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