WASHINGTON -- Consumers went on a buying binge in October and pushed up retail sales 1.5%, according to a Commerce Department report released Friday that reinforced expectations the economy is headed for a strong end-of-year performance.
"It's very reminiscent of last year, when we had a strong finish," said Brian Wesbury, chief economist for Griffin, Kubik, Stephens & Thompson Inc., in Chicago. "These numbers bode well for retailers this Christmas and the economy going into the end of the year."
The October rise in sales, which surpassed market expectations, was propelled by large gains of 3.6% in automobiles and 3.5% in homebuilding supplies. "Those are the classic signs of an economy coming out of its shell," said Wesbury.
In addition, the increase of 4.3 cents per gallon in the federal excise tax that took effect at the beginning of the month helped boost gasoline service station receipts by 2.9%.
Still, the October figures indicated a marked acceleration in consumer purchases from September, when sales rose a scant 0. I %, and reflected gains in a variety of goods. Excluding autos, sales were up 0.9% after an increase of 0.6%.
Consumers generally have been spending like gangbusters since the spring, providing a major source of lift to the economy. Personal spending rose 4.2% in the third quarter, contributing to a 2.8% gain in gross domestic product, and economists expect GDP growth in the current quarter to be in the range of 3% to 4%.
October sales at general merchandise stores rose 1.1 % after a gain of 0.9% in September.
Analysts cautioned that while they were impressed by the latest data, they do not expect sales to be sustained at the heady pace of recent months. "It looks very good, but we're not sure consumers can continue this way," said Cynthia Latta senior financial economist for DRI/McGraw-HJill Inc.
Consumer installment debt has soared in the last several months, according to Federal Reserve data, and economists suspect that aggressive marketing of credit cards and stepped-up use of cards at grocery stores and gasoline stations may be fueling a mini-binge in consumption. "There's concern on my part that people are eating dinner today an planning to pay for it in 199 Latta.
Analysts noted that personal income is not keeping up with spending, suggesting that consumers will soon have to scale back their buying. Moreover, a variety of tax increases and eliminations of deductions are scheduled to start biting after Jan. 1.
"There are still some question marks about what's out there next year, and people are divided," said Elias Bikhazi, senior financial economist for Deutsch Bank Securities.
Bikhazi said his forecast calls for GDP to rise a frothy 3.8% in the fourth quarter, but next year he is looking for output to subside to around 3% or less.
Wesbury said he is looking for growth of around 2% next year, but he believes that the large amounts of liquidity being pumped into the banking system by the Fed are laying the groundwork for higher inflation.