Americans Kept Spending on Most Goods Before Shutdown: Economy

Sales at most types of retailers, from electronics stores to restaurants, climbed in September, indicating households were sustaining the U.S. economic expansion before the government shutdown shook confidence.

Purchases (RSTAXMOM) excluding auto dealers rose 0.4 percent following a 0.1 percent gain the prior month, matching the median forecast of economists surveyed by Bloomberg, Commerce Department figures showed today in Washington. Total sales dropped 0.1 percent because car purchases over the Labor Day holiday weekend were counted in the figures for August.

Americans snapped up the newest mobile phones and video games in October, buoyed by low borrowing costs and rising household wealth backed by improving home and stock prices. Another report today showed consumer confidence sank this month by the most in two years on concern the world's largest economy will be set back by the fiscal gridlock in Washington.

Sales 'ended the third quarter on a pretty solid note,' said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, and the top-ranked forecaster of consumer confidence. 'That may not be sustained going into the fourth quarter.'

The Conference Board's consumer confidence index slumped to 71.2 in October, a six-month low and weaker than the median forecast of economists surveyed by Bloomberg, the New York-based private research group's data showed today. The 9-point drop from September's revised 80.2 was the biggest slump since August 2011, when a prior political standoff over the budget prompted Standard & Poor's to cut the country's debt rating.

Stocks Rise

Stocks rose, with the S&P 500 Index extending a record, as the drop in sentiment fueled bets the Federal Reserve will maintain stimulus as it starts a policy meeting today. The S&P 500 climbed 0.4 percent to 1,769.67 at 12:49 p.m. in New York.

Figures from abroad showed other economies are gaining traction. U.K. mortgage approvals rose in September to the highest level in more than five years, adding to signs of a strengthening property market that's being stoked by government incentives.

The housing market in the U.S. is also making progress. Home prices in 20 U.S. cities rose in August from a year ago by the most since February 2006 as stronger demand boosted values, another report showed today. The S&P/Case-Shiller index increased 12.8 percent from August 2012, more than forecast, after a 12.3 percent gain in the year ended in July.

An improving housing market is probably contributing to the gains in spending. Nine of 13 major retail categories showed increases last month, led by a 0.7 percent advance at electronics dealers, the biggest since April, and 0.9 percent gains at both grocery stores and restaurants, the Commerce Department report showed.

New iPhones

Purchases of electronics probably got a boost from the Sept. 20 release of 's two new iPhones models. The company sold a record 9 million iPhones in the weekend debut that included China among overseas markets.

Retailers may have also benefited from the surge in purchases of video games, whose 27 percent jump last month was driven by Take-Two Interactive Inc.'s 'Grand Theft Auto V.'

Today's report also showed sales dropped 2.2 percent at automobile dealers, after a 0.7 percent increase the prior month.

Vehicle demand remains a bright spot even though a quirk in the industry calendar hurt sales last month, data show. Cars and light trucks sold in September at a 15.2 million annual pace, down from an almost six-year high of 16 million the prior month, according to data from Ward's Automotive Group. Deliveries for the first two days of September, including the Labor Day holiday, didn't contribute toward automakers' tallies because they were counted in August figures.

August Surge

Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. reported U.S. sales declines last month, with fewer weekend selling days and tight supplies of some models after August's surge. General Motors Co. and Ford Motor Co. said earlier this month that the government shutdown posed a threat to an already slow economic recovery.

The budget battle pushed consumer expectations to a seven-month low, today's Conference Board figures showed. The gauge measuring Americans' six-month outlook dropped to 71.5 in October from 84.7.

'What we're seeing is more hesitancy among consumers given the fiscal policy uncertainty and the absence of confidence about future employment prospects,' said Michael Brown, an economist at Wells Fargo & Co. in Charlotte, North Carolina, who projected an overall confidence reading of 71.5. 'It's very clear that consumers are going into this holiday season more restrained than last year in terms of the pace of spending.'

Jobs, Incomes

The share of Americans who expected their incomes to decline rose to a six-month high of 15.4 percent from a previous reading of 13.9 percent. Fewer respondents said jobs would become more plentiful in the next six months.

Limited employment opportunities help explain why Fed policy makers will probably delay a tapering of monthly asset purchases until their meeting in March, according to the median of 40 responses in a Bloomberg survey this month. The Fed's decision to pare bond-buying depends on how it judges the strength of the U.S. expansion.

Fewer Americans said in today's confidence survey that they plan to buy homes and cars in the next six months.

Some companies project demand will pick up in the November-December holiday shopping season after a lull this month. , the world's largest-package delivery company, said it expects daily shipping volumes to rise 8 percent during the peak shipping period between the Thanksgiving holiday on Nov. 28 and Christmas, led by growth in online shopping, according to an Oct. 25 statement.

'Looking to the fourth quarter, although some major retailers have expressed caution about holiday spending, they still expect robust online sales,' Kurt Kuehn, chief financial officer at UPS, said on the Atlanta-based company's earnings call.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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