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U.S. Retail Sales Increase for Third Straight Month

Improving Retail Sales, Together With Other Positive Indicators, Point To Mounting Economic Recovery
October 17, 2012
Economic reports released this week confirmed more signs of a gradual economic expansion gaining traction in the U.S. The Census Bureau reported on Monday that U.S. retail sales for September totaled $412.9 billion, an increase of 1.1 percent compared with August and up 5.4 percent year over year. The report marked the third straight month of increasing retail sales, and the news sparked a rally on Wall Street.

The Commerce Dept. also revised retail sales for August up from 0.9 percent to 1.2 percent. No single category seemed to dominate the fairly strong sales, even iPhone 5 sales, as the sales appeared to broad-based.

U.S. retail sales have increased 24.6 percent from its most recent trough following the Great Recession in early 2009. In fact, total sales are higher than at their peak before the recession.

Retail sales over the three consecutive months suggest consumers did more to drive growth in the July-September period than economists had expected. Analysts and stock brokers welcomed the news of a modest rebound in retail sales after a sluggish summer, since consumer spending accounts for approximately two-thirds of economic growth domestically.

The encouraging retail sales report followed last Friday's news issued by the Labor Dept. that U.S. employers added 114,000 jobs in September and the unemployment rate dropped to 7.8 percent, the first time the unemployment rate dropped below 8 percent since January 2009.

Economists noted the improvement was not primarily due to people dropping out of the workforce but reflected an increase in employment, although many were part-time positions. In August, the Labor Dept. had reported that the U.S. Unemployment rate had fallen to 8.1 percent, largely driven by people who are dropping out of the labor force. However, in Friday's report, the Labor Department revised upward its figures for July and August, with employers actually adding 142,000 jobs in August, revised up from the 96,000 jobs announced last month. July's figures were revised upward to 181,000 jobs added from 141,000.

In more economic data pointing towards a mounting real-estate recovery, the Commerce Dept. also reported this week that U.S. homebuilders started construction on a seasonally adjusted annual rate of 872,000 homes in September of this year, an increase of 15 percent from the level in August land the fastest rate since July 2008. Single-family construction rose 11 percent, while apartment building increased a scorching 25.1 percent.

Applications for building permits, a sign of future construction, jumped nearly 12 percent to an annual rate of 894,000, also the highest since July 2008.

Construction activity rose in three of the nation's four regions. The biggest increases came in the West and South. Housing starts increased by nearly 20 percent in both regions. Construction of new homes and apartments rose 6.7 percent in the Midwest. Housing starts fell 5.1 percent in the Northeast.

Last month, the National Association of Realtors reported sales of existing homes increased for the sixth consecutive month, on a year-over-year analysis. Total homes sales in August, which include single-family homes, townhomes, condominiums and co-ops, rose 7.8 percent to a seasonally adjusted annual rate of 4.82 million in August from 4.47 million in July, and are 9.3 percent higher than the 4.41 million-unit level in August 2011.

Lawrence Yun, NAR chief economist, said favorable buying conditions get the credit. "The housing market is steadily recovering with consistent increases in both home sales and median prices. More buyers are taking advantage of excellent housing affordability conditions," he said. "The strengthening housing market is occurring even with difficult mortgage qualifying conditions, which is a testament to the sizable stored-up housing demand that accumulated in the past five years."

Most economists expect the housing sector to keep improving into next year. Record-low mortgage have encouraged more people to buy. And the Federal Reserve’s aggressive policies could push long-term interest rates even lower, making home-buying affordable for the foreseeable future.

However, until companies increase hiring and drive even greater job growth, many economists say economic growth will continue but at a very modest pace.

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