US retail sales expand to move economy recovery

WASHINGTON: US retail sales grew at the fastest pace in seven months in September as consumers shook off concerns about a weak stock market and political gridlock, giving a bit more momentum to the economic recovery.

Consumer sentiment, however, unexpectedly slipped in early October as worries about declining incomes drove a measure of expectations to the lowest level in more than 30 years.

Retail sales rose 1.1 percent in September, boosted by strong auto purchases, the Commerce Department said on Friday. The gain was stronger than economists had expected and sales for August and July were revised higher as well.

Consumer spending accounts for about two thirds of US economic activity, and the report suggested the economy had more vigour over the past three months than previously believed, although it was not yet out of the woods.

The data "reflects an economy that is still struggling but won't fall back into recession," said Omer Esiner, an analyst at Commonwealth Foreign Exchange.

A separate report on business inventories also suggested economists would likely raise forecasts for economic growth in the quarter following a weak first half of the year.

Inventories, which are a key component of gross domestic product, rose slightly more than expected in August and the government said July inventories gained more than initially estimated.

"It looks like third-quarter GDP is going to be better than the first and second quarter combined," said John Canally, an investment strategist and economist for LPL Financial in Boston. The economy grew at less than a 1 percent annual rate over the first half of the year.

The US Federal Reserve has been more concerned about the indifferent pace of the economic recovery than inflation pressures, and has said it stands ready to help the economy more if needed. It has already cut overnight lending rates to near zero and pumped about $2.3 trillion into the banking system.

Copyright Reuters, 2011