US shoppers defy credit worries

Consumers are likely to determine the outlook for the US economy

Concern about the state of the economy did not deter US consumers from going shopping in September as retail sales remained resilient.

Figures from the Department of Commerce showed shop sales rose 0.6% last month, a larger-than-expected rise.

Strong car and petrol sales boosted the overall figures although clothes sales were extremely weak.

Economists said the figures suggested the housing slump and subsequent credit squeeze had yet to hit the High Street.

Wall Street received the news positively, with the Dow Jones index climbing 56 points in early trading in New York.

But separate figures from the Michigan Survey of Consumers showed consumer confidence falling to a year-low in the first week of October.

Consumer confidence

The state of consumer spending is seen as a vital barometer of the health of the US economy.

The Federal Reserve cut interest rates by a half point last month to try and stabilise financial markets battered by weeks of instability.

If the consumer is going to be OK, the economy's going to be OK Jim Paulsen, Wells Capital Management

Policymakers also wanted to prevent consumer confidence from being seriously undermined by the sharp fall in the housing market and uncertainty about future economic prospects.

September's year-on-year figures suggest consumers remain bullish, as they comfortably beat analysts' expectations of a 0.2% rise.

The rise in sales was largely due to higher demand for cars, car parts and petrol. Excluding these items, sales rose just 0.2%.

Clothes retailers had a tough time of it in a month where unusually mild weather made shoppers reluctant to stock up their winter wardrobe.

Sales at clothes outlets fell 0.4% while department stores saw a 0.5% decline in sales.

These figures back up reports from many clothes retailers of tougher conditions on the High Street, with Gap suffering a 7% fall in like-for-like sales last month.

Credit fallout?

Analysts said the headline figure was the latest in a series of encouraging economic indicators which suggested the likelihood of the economy slipping into recession was receding.

Figures for new jobs have been revised upwards for the past two months while the trade deficit narrowed significantly in August.

"This builds the case that there is not a lot of fallout from the crisis on consumer spending," said Jim Paulsen, chief investment officer from Wells Capital Management.

"We are really starting to build a case here. If the consumer is going to be OK, the economy's going to be OK."

Separate figures published on Friday showed US producer prices rose a higher-than-expected 1.1% in September.

But stripping out food and energy costs, core prices rose just 0.1%. Analysts said this suggested that inflationary pressures had eased.