The U.S. Commerce Department reported Monday that retail and food services sales in October rose 1.2% in the month, exceeding market consensus for a 0.7% increase. Excluding auto sales, however, retail sales rose only 0.4%, in line with economists’ expectations. The reported $373 billion in sales was 7.3% higher than sales in October 2009.
“Continued high unemployment, uncertainty surrounding tax legislation, and the continued bolstering of household balance sheets will keep pressure on personal consumption for quarters to come, but we expect modest growth to continue,” economists Thomas Simons and Ward McCarthy of New York-based investment bank Jefferies & Co. wrote in an analyst note.
The economists noted that the tone of the October data was weaker than the big headline number would imply.
“While overall growth of 1.2% is very solid, the source of the growth was a big increase in motor vehicles and parts, which was expected to be strong due to the big increase in the October vehicle sales data out earlier this month,” they said. “A look at a measure of discretionary spending, retail sales excluding autos, gasoline and building materials, shows significantly more modest growth at +0.2%. The recovery continues to be quite modest as consumers spend only as much as they absolutely need to.”
Stocks reacted to the news well, rising steadily in trading, with the Dow Jones industrial average up by 84.08 points at midday, 0.75% higher, at 11,276.66. The S&P 500 was up 7.75 points, 0.65% higher, at 1,206.96. The Nasdaq index was up 13.33 points, 0.53% higher, at 2,531.54.