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Storms surge and US retail sales surge; most in 2 1/2 years

Last Updated Oct 13, 2017 at 8:20 am PST

WASHINGTON – Americans increased their spending at retailers last month by the most in two and a half years, driven by strong auto sales as residents of hurricane-ravaged areas replaced destroyed cars.

Retail sales rose 1.6 per cent in September, after slipping 0.1 per cent in August, the Commerce Department said Friday.

Auto sales jumped 3.6 per cent, the most since March 2015. Gas sales climbed 5.8 per cent, the most in four and a half years, reflecting price spikes after Hurricanes Harvey and Irma. The storms damaged oil refineries and pushed up gas prices 13 per cent last month.

Even excluding the volatile auto and gas categories, sales rose a solid 0.5 per cent, up from a 0.1 per cent gain in August.

Neil Saunders, managing director of Global DataRetail, said that many analysts worried higher gas prices would lead Americans to spend less elsewhere.

“This did not materialize, and consumers used modest gains in wages … to carry on buying,” Saunders said.

Americans are optimistic about the economic outlook. A measure of consumer sentiment released Friday by the University of Michigan rose to its highest level since 2004. The U.S. unemployment rate has hit a 16-year low, and wages have ticked up in recent months. That should boost spending and broader economic growth in the coming months.

Most of the gains last month were likely fueled by Hurricanes Harvey and Irma, which slammed into Texas, Florida and other southeastern states in late August and September.

Sales at home and garden supply stores rose 2.1 per cent, probably lifted by hurricane preparation, as well as repairs and renovations in the aftermath of the storms. Grocery store sales increased 0.8 per cent, the most since April 2016, likely boosted by restocking after the hurricanes hit.

Sales at general merchandise stores, which include big box retailers such as Walmart and Target, rose 0.3 per cent.

Online retailers reported another healthy gain of 0.5 per cent. E-commerce sales have jumped 9.2 per cent in the past year, more than double the overall sales increase of 4.4 per cent.

Not all stores saw a boost: Sales at furnishers, electronics and appliance stores, and sporting goods stores fell.

The retail sales report is closely watched because it provides an early read on consumer activity each month. Consumer spending accounts for about 70 per cent of the economy.

U.S. economic growth likely slowed in the July-September quarter as the hurricanes shut down thousands of businesses, people were forced to miss work, and power was cut to millions of homes. Analysts forecast that the economy expanded at a 2 per cent annual pace in the third quarter, down from a 3 per cent gain in the April-June quarter.

Yet the economy is expected to rebound in the final three months of the year as rebuilding and repair work accelerates. Construction and engineering firms are expected to step up hiring as homes, commercial buildings and roads and bridges are fixed. Economists expect growth will pick up to a 2.5 per cent to 3 per cent pace.