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Retail sales post solid gains

More good news: Core wholesale prices fell by .3% in October

WASHINGTON — Retail sales performed far better than expected in October as consumers took encouragement from falling gasoline prices.

In other good economic news, core prices at the wholesale level — excluding food and energy costs — dropped by 0.3 percent last month, the biggest decline in two years. That offered reassurance that the big run-up in energy prices has yet to spill over into more widespread inflation.

The Commerce Department reported that retail sales dipped 0.1 percent in October. However, the weakness was concentrated in a 3.6 percent decline in auto sales as the boost from summer sales incentives waned and consumers shunned gas-guzzling sport utility vehicles.

Excluding autos, retail sales rose by a solid 0.9 percent last month, triple the pace economists had expected with department stores and specialty clothing stores enjoying a strong rebound.

Analysts said a retreat in gasoline prices last month apparently encouraged consumers to resume spending.

"This suggests that the economy has largely shrugged off the ill effects of the hurricanes," said Mark Zandi, chief economist at "Christmas will turn out better than expected."

Before the encouraging retail sales report, economists had worried that the higher energy costs could trigger cutbacks in other areas of retail sales, a worrisome prospect given that consumer spending accounts for two-thirds of total economic activity.

Consumer confidence had fallen sharply in September and October under the impact of a surge in energy prices that saw the nationwide average for gasoline briefly rise above $3 per barrel, reflecting widespread shutdowns of Gulf Coast oil refineries after Hurricane Katrina struck in late August.

On the inflation front, the Labor Department reported Thursday that wholesale prices rose by 0.7 percent in October after an even sharper 1.9 percent increase in September.

However, excluding food and energy costs, so-called core inflation fell by 0.3 percent in October, the biggest one-month decline in two years.

That was seen as good news that the energy surge was not spilling over into more widespread price pressures.

More inflation data will be released Wednesday when the government reports on how consumer prices behaved in October. If core consumer inflation is also behaved in October, analysts said it should go a long way to ease fears in financial markets that inflation pressures are accelerating.

"The reports of all those firms raising prices appears to be greatly exaggerated," said Joel Naroff, chief economist at Naroff Economic Advisers, an economic consulting firm.

Other analysts, however, cautioned that consumers' willingness to spend during the all-important Christmas sales season may still be jolted in coming weeks as they get the first of what are expected to be sharply higher home heating bills.

The wholesale inflation report showed that while gasoline prices fell by 3.3 percent last month, residential natural gas was up 12.7 percent and residential electricity rose by a record 2.9 percent. Many utilities use natural gas to generate electricity.

Food prices at the wholesale level declined by 0.1 percent in October after a 1.4 percent jump in September. The price declines were led by a 25.2 percent drop in egg prices.

The retail sales report showed that sales at specialty clothing stores were up a sharp 3.1 percent in October while department store sales posted a solid 1.5 percent increase. Both of these areas had suffered sales declines in September.

Sales of furniture, appliances and sporting goods also showed increases while sales at hardware stores shot up 2.1 percent, an increase that analysts said was likely linked to the start of rebuilding along the Gulf Coast.