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Retail Sales Rise in August

The unexpected increase and fewer jobless benefit claims suggest the Fed may keep rates steady.

September 15, 2006|From Bloomberg News

Retail sales rose in August and first-time claims for jobless benefits fell, according to government reports Thursday, showing the economy is withstanding the deteriorating housing market.

The Commerce Department said sales, which many analysts had forecast to decline, rose 0.2%. Excluding automobiles, sales increased by the same percentage. The number of unemployment claims by first-time filers dropped by 5,000 to 308,000 last week, according to the Labor Department, which also said import prices climbed 0.8%.

Spending may pick up in coming months as oil prices retreat and incomes rise, reducing the risk that the economy will be hard hit by a slide in residential real estate sales. Federal Reserve policymakers, who will meet Wednesday, are likely to keep interest rates steady for a second month while waiting for confirmation that the economy is slowing enough to tame inflation.

Joel Naroff, president of Naroff Economic Advisors in Holland, Pa., said fears of a dramatic slowdown in consumer spending have thus far been unfounded.

"The Fed is still likely to do nothing next week, and continue to pause," he said.

The central bank ended a two-year run of rate increases at its August meeting.

Another Commerce Department report showed sales and inventories at U.S. businesses rose 0.6% in July, suggesting that companies kept stocking up in anticipation of strong demand. The increase in the value of unsold goods at factories, retailers and wholesalers came after a revised 0.9% gain in June that was more than initially reported.

A Bloomberg News survey of 79 economists forecast retail sales would decline 0.2%. Aside from automobiles, the median forecast was for a 0.3% increase after a previously reported 1% gain in July.

"The data today is slightly more positive for the economy in the second half of the year," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "I'm especially encouraged that unemployment claims remained fairly low."

Attention now turns to today's report on August consumer prices, which economists expect will increase at half the previous month's pace.

Prices of goods imported into the U.S. rose 0.8% in August, more than expected, led by increases in oil, natural gas and metals, the Labor Department reported. Excluding oil, prices increased 0.5%.

"The report does raise eyebrows," said Anthony Chan, chief economist at JPMorgan Private Client Services in New York. "It may prove to be somewhat troublesome on the inflation front. We'll need to see the economy slow down considerably to see inflationary pressures moderate."

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