By Courtney Schlisserman and Joe Richter
Nov. 14 (Bloomberg) -- Reports on retail sales and producer prices showed U.S. economic growth is cooling after its third- quarter spurt, while inflation slows.
Americans skimped on furniture and sporting goods in October to offset higher energy costs, leading Lehman Brothers Holdings Inc. to anticipate ``one of the weakest'' holiday shopping periods in years. Meanwhile, a less-than-forecast 0.1 percent increase in wholesale prices reinforced traders' expectations that the Federal Reserve will be forced to reduce interest rates again next month.
``The economy is still expanding but not at a rapid rate, and for as long as inflation remains favorable the Fed will be willing to provide additional support,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who correctly predicted the rise in retail sales.
The 0.2 percent retail-sales increase followed a revised 0.7 percent gain the previous month, the Commerce Department said today in Washington. The median forecast of economists surveyed by Bloomberg News was for a 0.1 percent rise. Producer- price gains retreated from a 1.1 percent rise in September.
``Consumer spending is slowing into the fourth quarter,'' said Drew Matus, a senior economist at Lehman in New York, who correctly forecast the increase in sales. The report ``takes a few tenths off'' growth this quarter.
Purchases excluding automobiles also rose 0.2 percent.
Energy Role
The increase in sales was boosted by a 0.8 percent jump in purchases at service stations that probably reflected higher gasoline prices. Excluding gas, retail sales were up 0.1 percent, the smallest advance in four months.
The average price of regular gasoline at the pump reached a three-month high of $2.91 a gallon at the end of October, according to data from the America Automobile Association. The average reached $3.11 at the start of the week.
Sales at furniture stores dropped 0.9 percent last month after falling 1.3 percent in September. Purchases of sporting goods fell 0.4 percent and sales at department stores decreased 0.5 percent. Non-store retailers, such as internet merchants, saw a 1 percent decline in demand.
Auto dealers, grocery stores, restaurants and building- material merchants were among those that saw an increase in sales.
Treasury notes fell in the minutes after the reports, before recouping most of their decline. The dollar extended its retreat against the euro. Most stocks rose after Bear Stearns Cos. eased concern that credit-market losses will deepen.
GDP Calculation
Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.1 percent, following a 0.2 percent increase the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.
The Fed currently views the risks of higher inflation and slower growth as equally balanced after it lowered the rate target twice in as many months, Chairman Ben S. Bernanke said Nov. 8 in testimony to Congress.
``Further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity,'' Bernanke said.
The economy will grow at an annual rate of 1.5 percent from October through December, less than half the pace of the previous three months, according to the median forecast in a Bloomberg survey from Nov. 1 to Nov. 8. Consumer spending will rise at a 2 percent rate, also slower than the third quarter, the survey showed.
Gasoline at more than $3 a gallon, declines in home values and restrictions on borrowing will limit Americans' ability to spend as the November-December holiday shopping season gets under way, economists said.
Wal-Mart, Macy's
Unseasonably warm weather made matters worse for merchants last month as demand for jackets and sweaters waned. Seven out of 10 retailers, including Wal-Mart Stores Inc. and Macy's Inc., reported October sales below analysts' forecasts, according to a report last week from Retail Metrics LLC.
Sales at chain stores increased 1.6 percent from the same month last year, the worst October since 1995, the International Council of Shopping Centers said last week. The results, based on 44 retailers, missed the New York-based group's 2 percent forecast and suggest a slowdown in holiday spending.
Wal-Mart marked down 15,000 holiday items, 20 percent more than last year, and started discounting toys in the beginning of October, more than two weeks earlier than in 2006. The world's largest retailer yesterday reported an increase in third-quarter profit, helped by the price-cutting strategy.
The housing slump will linger well into 2008, continuing to decrease demand for furniture, appliances and home-related goods, economists said. Home Depot Inc., the world's largest home-improvement retailer, yesterday reported lower third- quarter profit and cut its full-year earnings forecast.
``We are facing a tough environment as housing indicators continue to deteriorate,'' Chief Executive Officer Frank Blake said in a statement.
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