By Joe Richter and Bob Willis
Dec. 13 (Bloomberg) -- Retail sales exceeded forecasts in November, while wholesale prices jumped the most in 34 years, diminishing both the need and scope for the Federal Reserve to make deeper interest-rate cuts.
Retail sales rose 1.2 percent in November, the Commerce Department said in Washington, twice as much as economists anticipated. Separate figures from the Labor Department showed prices paid to U.S. producers climbed 3.2 percent. Excluding food and fuel, expenses rose 0.4 percent.
Treasury notes fell after the reports, which signaled the economy might avert a recession even as the housing slump shows no sign of abating. The figures are consistent with the Fed's prediction two days ago of a ``moderate'' expansion next year, while energy and commodity prices may stoke inflation. Morgan Stanley and Bank of America Corp. raised their estimates for fourth-quarter economic growth after today's reports.
``We should still see reasonable sales growth and no recession,'' said Allan Meltzer, professor of political economy at Carnegie Mellon University in Pittsburgh. ``It's quite reasonable to expect high energy prices will slow business investment and, eventually, consumer spending, but people are working, the unemployment rate is low and Christmas is Christmas.''
The government numbers for November contrast with some industry reports that suggest spending may weaken this month. Sales fell 2.7 percent in the seven days through Dec. 8, following a 4.4 percent decline a week earlier, Chicago-based research firm ShopperTrak RCT Corp. said yesterday.
``This may be the calm before the storm, but so far the consumer is weathering the bad news out there,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
The 30-member Standard & Poor's 500 Retailing Index fell 1.1 percent to 420.1. The S&P 500 Index rose 0.1 percent.
Purchases at furniture, electronics, building-material, and department stores all increased, the Commerce Department said. Only auto dealers and a category called miscellaneous store retailers declined in November.
The department separately reported that inventories at U.S. businesses increased less than forecast in October as sales rose, reflecting stronger demand at grocery stores. Inventories gained 0.1 percent as sales advanced 0.7 percent.
Morgan Stanley economists lifted their estimate for economic growth this quarter after the reports, to 1.2 percent, from 0.2 percent. Their counterparts at Bank of America raised their calculation to between 0.5 percent and 1 percent, from 0.1 previously.
Excluding autos, gasoline and building materials, the figures the government uses to calculate gross domestic product, sales rose 1.1 percent, following a 0.2 percent gain the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.
``It gives us one solid number for this quarter, which will aid growth,'' said Ryan Reed, an economist at National City Corp. in Cleveland, who correctly predicted the sales increase.
Sales were expected to rise 0.6 percent, based on the median forecast of 80 economists surveyed by Bloomberg News. Estimates ranged from a decline of 0.2 percent to a gain of 1.2 percent.
Reed said the producer price figures may explain why the Fed has resisted cutting its benchmark rate by more than a quarter point at its the last two meetings.
Economists had forecast a 1.5 percent increase in producer prices, according to the median of 77 estimates in a Bloomberg survey. Excluding food and energy, the median forecast was for an increase of 0.2 percent following no change the prior month.
Over the past 12 months, prices rose 7.2 percent, compared with a 6.1 percent increase in the 12 months through October. Producer prices excluding food and energy climbed 2 percent for the 12-month period.
Energy costs rose 14.1 percent, a record one-month gain, after falling 0.8 percent in October. Costs for gasoline rose a record 34.8 percent. Most of the recent jump in energy prices took place in the first half of November, when the survey was conducted, economists said. The government, in calculating wholesale prices, asks survey participants to report costs as of the Tuesday of the week that includes the 13th.
``Going forward, it's something the Fed is going to have to carefully consider,'' said Reed. ``Obviously, they've been reluctant to cut rates in recent months and this is the reason why.''
More jobs and higher incomes may cushion the damage from $3-a-gallon gasoline and declining home prices, preventing a collapse in demand, economists said.
Employers hired more workers than forecast in November and hourly wages rose more than projected, the Labor Department reported last week. The figures suggested job growth remains one of the few bright spots in the economy.
Bentonville, Arkansas-based Wal-Mart Stores Inc., the world's largest retailer, said November sales rose within the company's forecast as shoppers stocked up on holiday food and gifts. Wal-Mart increased post-Thanksgiving discounts to lure shoppers burdened by higher gasoline and food costs.
The latest readings suggest consumers may be taking a breather in early December following last month's binge. The National Retail Federation has predicted the smallest holiday sales gain in five years.
United Airlines Inc., Delta Air Lines Inc., Continental Airlines Inc. and Southwest Airlines Co. have cut 2008 U.S. capacity plans amid growing concern over rising oil prices and a weakening economy.
``We are concerned about growing evidence of slowing economic growth that would inevitably affect passenger demand, coupled with a surge in energy prices,'' Southwest Chief Executive Officer Gary Kelly said in a statement on Dec. 4.
The Fed, European Central Bank and three other central banks yesterday moved to alleviate a credit squeeze that's threatening growth. The banks took the action after interest- rate cuts in the U.S., U.K. and Canada failed to allay concerns that banks will rein in lending, sending the U.S. into recession.