Sales down and prices up in US

Increased car prices put off US consumers

Sales were down and prices were up in US stores during October, the latest official figures have shown.

American shoppers tightened their purse strings during the month, according to newly released retail figures from the US Commerce Department.

It reported that retail sales fell 0.3% during October, the second monthly fall in US consumer activity in succession.

A separate report said wholesale prices increased by 0.8% during October, the biggest gain in seven months.

Both figures surprised analysts, yet a sizable proportion of each could be blamed on US customers buying less cars in response to automotive price increases as new models hit the market.

I view it positively in that everyone understands the Fed is intent on reflating the US economy Joseph Keating, investment officer, Amsouth Management

Taking out the 1.9% drop in demand for cars, retail sales actually rose by 0.2% during the month.

This figure matched analysts' forecasts.

In addition to the 1.6% rise in car prices, the separate Produce Price Index (PPI) from the US Labour Department, reported a 2.2% increase in food prices - the largest rise since January 1984.

The food price rise was mainly caused by an ongoing shortage of cattle in the US, which saw the value of beef increase by a giant 18.3%.

'Continued recovery'

Together the overall PPI increase of 0.8% surprised Wall Street, which had been expecting just 0.2%.

Yet many analysts welcomed the surprise rise in the PPI, which measures prices paid to farms, factories, and refineries, saying the inflation was a good sign of continuing economic recovery.

The price of beef shot up because of a lifestock shortage

This confidence is apparently mirrored by the US population, with the latest Consumer Sentiment index from the University of Michigan rising to 93.5 in early November, from 89.6 in late October.

Analysts explained away the modest fall in retail spending as US consumers tightening their belts ahead of the expensive Christmas period, and after the summer tax-cut induced a shopping spree in July and August.

George Mokrzan, chief economist at Huntington Private Financial Group in Columbus, Ohio, said the increased prices were "positive for company profits".

He added: "The pricing power of companies has picked up. It's consistent with an economic recovery."

'Spending surge'

Turning to the retail figures, Mr Mokrzan said: "That is pretty much what I expected.

"Excluding autos, this was a decent number. We saw a surge in spending in the third quarter."

Joseph Keating, chief investment officer at Amsouth Asset Management, in Alabama, said that if you ignore automotives, the retail figure held up.

He added: "PFI is potentially more interesting. I view it positively in that everyone understands the Fed is intent on reflating the US economy.

"Not that we're going back to a high level of inflation, but we do need to avert any kind of deflationary pressure."