By Lucia Mutikani
WASHINGTON (Reuters) - U.S. retail sales rebounded in October, but consumers cut back on purchases of big-ticket household items and clothing, which could temper expectations for a strong holiday shopping season.
The report from the Commerce Department on Friday pointed to a moderate pace of consumer spending that probably remains sufficient to offset some of the drag on the economy from a downturn in the industrial sector.
"Consumers are easing off their spendthrift ways from the second quarter and are adopting more prudent attitudes, perhaps still nervous over trade tensions and the slowing of hiring -though that still remains robust," said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia.
"Should these trends continue we will be facing a not-so-merry holiday shopping season."
Retail sales increased 0.3% last month, lifted by motor vehicle purchases and higher gasoline prices, reversing September's unrevised 0.3% drop, which was the first decline in seven months. Economists polled by Reuters had forecast retail sales gaining 0.2% in October.
Compared to October last year, retail sales advanced 3.1%.
Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% last month. Data for September was revised lower to show the so-called core retail sales slipping 0.1% instead of being unchanged as previously reported. Core retail sales correspond most closely with the consumer spending component of gross domestic product.
The dollar fell against a basket of currencies. U.S. Treasury prices slipped. U.S. stock were slightly higher.
MANUFACTURING WOES DEEPEN
Consumer spending, which accounts for more than two-thirds of the economy, increased at a 2.9% annualised rate in the third quarter. It is being supported by the lowest unemployment rate in nearly 50 years and has helped to blunt the hit on the economy from the White House's 16-month trade war with China.
The U.S.-China trade war has led to a decline in capital expenditure and a recession in manufacturing.
Other data on Friday from the Federal Reserve showed manufacturing output tumbling 0.6% in October, the most since May 2018, after dropping 0.5% in September.
Output at factories was weighed down by an 11.1% plunge in motor vehicle production because of a 40-day strike by workers at General Motors (N:GM). Excluding auto production, manufacturing output slipped 0.1% last month.
The rebound in core retail sales added to reports showing stabilizing inflation in supporting the Federal Reserve's signal that it will probably not cut interest rates again in the near term. Other reports this month have shown solid job growth in October and an acceleration in services sector activity.
The data and easing trade tensions between Washington and Beijing have diminished financial market fears of a recession. Fed Chairman Jerome Powell told lawmakers on Thursday that "the U.S. economy is the star economy these days," compared to other advanced economies and "there's no reason that can't continue."
The Fed last month cut rates for the third time this year and signalled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.
Auto sales increased 0.5% in October after declining 1.3% in September. Receipts at service stations surged 1.1%, reflecting higher gasoline prices, after dipping 0.1% in the prior month. Online and mail-order retail sales increased 0.9% after gaining 0.2% in September.
Walmart Inc (N:WMT) on Thursday reported better-than-expected earnings for the third quarter, driven by food sales. The world's largest retailer raised its annual outlook.
But the retrenchment in purchases of big-ticket household items casts a cloud on the holiday shopping season, which typically kicks off around Thanksgiving.
Sales at electronics and appliance stores fell 0.4% last month and receipts at clothing stores declined 1.0%. Spending at furniture stores fell 0.9%, the largest decline since December 2018. Receipts at building material stores dropped 0.5%.
Purchases of these items were likely hurt by the broadening in October of tariffs on imported Chinese goods to include a range of consumer goods.
Americans also cut back on spending at restaurants and bars, with sales falling 0.3%, the most in nearly a year. Spending at hobby, musical instrument and book stores dropped 0.8%.
A separate report on Friday from the Labour Department showed import prices fell more than expected in October, pulled down by declines in the prices of petroleum products and food, suggesting inflation could remain moderate despite an increase in overall consumer and producer prices in October.
The Labour Department said import prices dropped 0.5% last month. Data for September was revised lower to show import prices gaining 0.1% instead of climbing 0.2% as previously reported.
Export prices dipped 0.1% in October after falling 0.2% in the prior month. Export prices decreased 2.2% on a year-on-year basis in October, the most since August 2016, after falling 1.6% in September.
(Graphic: USA-ECONOMY-RETAILSALES interactive link: http://fingfx.thomsonreuters.com/gfx/rngs/USA-ECONOMY-RETAILSALES/010030JR15Y/index.html)
(Graphic: U.S. import prices and oil DataStream Chart link: http://fingfx.thomsonreuters.com/gfx/rngs/USA-ECONOMY/010030JD153/18sv1214mfc6.htm)