WASHINGTON -- The U.S. economy showed fresh signs of vigor in November as retail sales surged and wholesale price pressures resurfaced, according to two government reports released yesterday.
The Commerce Department said retail sales jumped 1.2% as consumers continued to snap up automobiles and other high-priced durable goods. The increase, double what analysts expected, followed a revised gain of 1.3% in October sales to mark the sixth straight monthly rise.
In a separate report, the Labor Department said its producer price index rebounded 0.5% last month as higher energy prices took their toll. The gain followed decreases of 0.5% in September and October that had fueled optimism that inflation was under control.
Despite the November increase, producer prices were up only 1.3% from a year ago.
Analysts said the strength in retail sales increased the likelihood that economic growth will turn out to be strong in the final three months of 1994. Some estimates for gross domestic product range as high as 4%, about the pace cited for the year by Fed chairman Alan Greenspan in his recent testimony to Congress.
"Consumers have their wallets wide open, and they're using a lot of credit," said Stuart Hoffman, chief economist for PNC Bank Corp.
According to the Commerce Department figures, sales at auto dealerships jumped 2.0%, sales of building materials and hardware jumped 2.9%, and sales at furniture stores advanced 2.3%. Similarly large gains were posted for autos and other durable goods in October.
Sales of nondurable goods were softer, rising 0.4% after a gain of 0.3% in October. However, clothing stores saw sales rise 0.6%, and gasoline service station sales rose 0.9%, apparently reflecting higher prices of reformulated gasoline that dealers are introducing to meet Clear Air Act requirements.
According to the Labor Department, gasoline prices shot up 4.5% after falling in September and October and were a large factor in the overall increase in producer prices. Excluding food and energy, prices rose only 0.1% -- which was less than analysts expected and provided support to the bond market.
Still, analysts said other aspects of the producer price report suggested that pressures continue to build below the finished goods level. Prices of intermediate goods jumped 1.1%, and crude goods prices surged 1.0%.
Compared with a year earlier, prices of intermediate goods were up 3.9% in November, the biggest year-over-year increase so far in 1994.
In his recent testimony, Greenspan noted that manufacturers have been holding off from passing on higher materials costs to their customers. But, he added, "with demand for their output strong, finished-goods producers may soon attempt to pass on their higher costs."
"All the signs are right for inflation to intensify," said Debbie Lee, senior economist for Stein Roe & Farnham Inc., in Chicago. Equity analysts at the firm have found that suppliers of paper goods, as well as glass goods and jars, are ready to pass on higher prices that they believe will stick, she said.
Lee estimated that inflation will be up next year somewhere from 3.5% to 4%, which would not be high by recent experience but would be an upturn from this year's expected increase of 3% or less.
Despite the continued strength in the economy, many analysts expect Fed officials will refrain from raising shortterm rates again at the Dec. 20 meeting of the Federal Open Market Committee in order to have more time to gauge the impact of their earlier credit tightenings. Their last move on Nov. 15 boosted the federal funds rate to 5.50% from 4.75%.
In addition, Fed officials are believed to be anxious not to want to roil financial markets that are already under stress from the Orange County debacle. "They have a three-month pattern in rate changes, and with all the anxiety over Orange County, discretion is the better part of valor," said Ray Worsek, chief economist for A.G. Edwards & Sons Inc., in St. Louis.