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Posted: Thursday, December 13th 2012 at 1:42pm

Retail sales up .3 percent in Nov.; wholesale price index down

By Ken Stanford Staff
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WASHINGTON (AP) -- Americans spent more online in November to start the holiday season and began to replace cars and rebuild in the Northeast after Superstorm Sandy, driving retail sales up. Meanwhile, the wholesale price index is down.

U.S. retail sales rose 0.3 percent in November from October, the Commerce Department said Thursday. That offset a 0.3 percent decline in October from September.

The figures were much stronger after factoring lower gas prices. When excluding a large drop in gas station sales, retail sales increased a solid 0.8 percent.

The report offered a mixed signal for the holiday shopping season. Sales that reflect online shopping surged 3 percent - the biggest gain in 13 months. But department store sales tumbled and Americans spent less at stores like Wal-Mart and Target.

Some of the decline may be because of the storm. Still, economists worry that consumers may also be growing more cautious because of looming tax increases set to take effect in January.

Sandy made landfall on Oct. 29 and slowed business activity during the first couple of weeks of November - the start of the busiest shopping period of the year, Retailers can make up to 40 percent of their annual revenue in the final two months of the year.

The November retail sales report largely reflected a rebound from the storm. Auto sales jumped 1.5 percent, as many people sought to replace damaged vehicles. Sales at home improvement stores increased 1.6 percent.

Some figures suggest shoppers regained their enthusiasm for the holidays, perhaps later in the month. Electronic and appliance sales rose 2.5 percent. Furniture sales increased 1 percent.

Still, department stores sales dropped 0.8 percent. And sales at general merchandise stores, a broader category that includes Wal-Mart and Target, fell 0.9 percent.

In addition to the storm's impact, consumers might scale back on holiday shopping if they are concerned about the "fiscal cliff." That's the name for tax hikes and spending cuts that are scheduled to go into effect next year if Congress and President Barack Obama cannot reach a deal to avert them.

The retail sales report is the government's first look at consumer spending. Consumer spending is important because it drives nearly 70 percent of economic activity.

The economy grew at a solid 2.7 percent annual rate in the July-September quarter. But the gains were mostly because businesses stepped up restocking, which drove more factory production.

Consumer spending actually slowed over the summer from the previous quarter. And many economists worry that consumers have remained cautious in the final three months of the year, because of the storm and their fears about higher taxes next year. That should keep growth below an annual rate of 2 percent in the October-December quarter, they say.

WHOLESALE PRICE INDEX

Cheaper gas drove down a measure of wholesale prices in November for the second straight month, a sign inflation remains mild.

The producer price index fell 0.8 percent last month, the steepest drop since May, the Labor Department said Thursday. That follows a 0.2 percent decline in October. The index measures the cost of goods before they reach the consumer.

Gas prices fell last month by the most in more than three years. Food prices, however, rose by the most in nearly two years, pushed higher by costlier beef and vegetables.

Beef prices jumped 8.2 percent, the biggest gain in four and a half years. Vegetable prices rose nearly 12 percent. Grocery stores may mark up the prices of those products in the coming months, but probably not by as much.

High unemployment and weak wage increases will make it hard for retailers to pass on all of the higher costs.

"With global economic growth anemic at best ... we foresee little impetus for significant, sustained upside pressure on core prices," Joshua Shapiro, chief economist at MFR Inc., said in a note to clients.

In the past year, wholesale prices have increased 1.5 percent. That's the lowest annual pace in four months.

Excluding volatile food and gas costs, wholesale prices ticked up 0.1 percent in November and 2.2 percent in the past year.

Gas prices had risen sharply over the summer, pushing up both the producer and consumer price indexes. But since then, the cost of gasoline, home heating oil and natural gas has fallen back.

Nationwide, a cost of a gallon of gasoline fell to $3.32 Wednesday, according to AAA, down 13 cents in the past month and nearly 50 cents since mid-October.

Low inflation means consumers have more money to spend, which helps the economy. It also gives the Federal Reserve more room to keep interest rates low in an effort to spur economic growth. If prices were to begin rising rapidly, the central bank might be forced to raise rates in response.

The Fed said Wednesday that it now plans to keep the short-term interest rate it controls at nearly zero until the unemployment rate falls to at least 6.5 percent and inflation isn't expected to top 2.5 percent in the next two years.

In a statement, Fed policymakers said that they expect "inflation over the medium term will likely run at or below its 2 percent objective."
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