WASHINGTON – Superstorm Sandy combined with cautious consumers to lower retail sales in October and raise concerns about weaker economic growth and a tepid holiday shopping season.
Consumers might be holding back also because of anxiety over big tax increases and spending cuts – known as the fiscal cliff – that will take effect in January unless Congress and the White House reach a budget deal by then.
Retail sales dropped 0.3 percent last month after three months of gains, the Commerce Department said Wednesday. Sales at auto dealers fell 1.5 percent, the most in more than a year.
The storm depressed car sales and slowed business in the Northeast at the end of the month, economists said. The government said Sandy forced some stores and restaurants to close and lose business, while others reported higher sales ahead of the storm as people bought supplies.
Online and catalog purchases fell 1.8 percent, the most in a year. Widespread power outages prevented some online shopping.
But sales slowed in eight of the 13 broad categories tracked by the government. Electronics, building supplies and clothing stores all posted lower sales. The broad declines suggest Octobers weakness went beyond the storm.
Looking past (Sandys) impact, U.S. consumers appeared to dial it back a notch, said Robert Kavcic, an economist at BMO Capital Markets. There was relatively broad-based weakness in this report.
The retail sales report is the governments first look at consumer spending, which drives 70 percent of economic activity. Economists say the November and December sales figures will provide a better picture of the economys health.
If sales rebound, that would suggest the October decline was a temporary lull exacerbated by the storm. But ongoing weakness would show that consumers are scaling back on spending, perhaps because of concerns that their taxes will increase next year.
Retailers traditionally see a lull in October because consumers take a break before buying holiday gifts.
But Americans fixation on the presidential election and Superstorm Sandy worsened the trend, said Ken Perkins, president of Retail Metrics, a research firm.
One hopeful sign that the weakness could be temporary: Consumer confidence rose in November to its highest level in five years.
But economists point out that consumers may be forced to make storm-related repairs a priority. That could cut into holiday sales.
Prior to the storm, business appeared more optimistic that sales would stay strong. They rebuilt their stockpiles of goods at a healthy pace in September, according to a separate report released Wednesday. But most economists expect that restocking will slow in the final three months of the year, partly because of last months weaker retail sales.
Consumers should benefit from low inflation in the coming months, according to a third report Wednesday.
Wholesale prices fell 0.2 percent in October, the first decline since May, the Labor Department said. A big drop in gasoline and other energy prices offset a rise in food costs.