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October Retail Sales Up an Unexpected 1.1% : Indicators: Factory production also surges--more evidence that the economy continues to beat expectations.

November 16, 1994|From Reuters

WASHINGTON — The economy continued to thrive in October as factories ran at their busiest rate in more than 14 years, and consumers spent freely in the shopping malls and auto dealerships, the government said Tuesday.

The data adds to growing evidence that the economy is again outpacing expectations.

The Commerce Department said sales at retail stores jumped an unexpected 1.1% last month, following a revised 0.5% rise in September, with total sales hitting a record $191.2 billion.

Excluding autos, sales rose 0.6%, following a 0.5% increase in September.

At the same time, the Federal Reserve Board reported that production by the nation's factories increased strongly in October, moving closer to their outer limits as both consumers and industry sought additional products.

Industrial output gained 0.7% last month after a 0.1% dip in September. Factory use rates climbed to 84.9%--the highest in about 14 years.

"I think the new information shows that the economy in the current quarter is probably stronger than some on Wall Street might have been expecting," Allan Leslie of Discount Corp. said.

The economy grew 3.4% in the third quarter. It had been expected to slow during the current three months, in part because the Fed had put on the brakes to curb inflation. But evidence is mounting that this slowdown might be less than many had thought.

"Given jobs and given income, consumers continue to show a willingness to spend," said Robert Dederick of Northern Trust Co.

Both the Fed and the Clinton Administration believe that the long-term health of the economy would be enhanced if annual growth could be slowed to about 2.5%, the level at which inflation begins to stir.

However, there has been little evidence that even at stronger levels the economy has triggered dangerous inflationary pressures, though the Fed might have been successful in keeping the expansion from overheating.

The Fed, faced with new evidence of the economy's strength, increased interest rates for the sixth time this year Tuesday in an effort to slow growth enough to keep inflation at bay. It was the biggest increase since 1980.

After a closed-door meeting of its key policy-setting Federal Open Market Committee, the central bank issued a statement indicating it was pushing up two key rates.

The benchmark federal funds rate, which banks charge each other on overnight loans, was increased to 5.50% from 4.75%. The Fed announced it was also raising its discount rate, the interest it charges to make direct loans to banks, by 0.75 percentage point.

The economy has apparently shaken off the previous five Fed rate hikes, as auto sales and even housing have continued to show strength.

Wall Street economists had forecast a 0.6% increase in overall retail sales and a 0.4% gain with autos excluded.

New car dealers said business continued to thrive in October, rising 2.9% after moving up 0.6% in September.

New cars account for about a fifth of all retail spending, so swings in demand strongly affect overall monthly figures.

Retail Sales

Seasonally adjusted in billions of dollars. Oct.94: 191.2

Source: Commerce Department

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