U.S. retail sales fell in October for the first time in three months as superstorm Sandy slammed the brakes on automobile purchases, suggesting a loss of momentum in spending early in the fourth quarter.
Other data on Wednesday showed little inflation, with wholesale prices falling in October for the first time since May, giving the Federal Reserve latitude to maintain its ultra easy monetary policy stance to nurse the economy back to health.
Retail sales dipped 0.3 per cent last month after a 1.3 per cent increase in September, the Commerce Department said. Economists had expected sales to fall 0.2 per cent.
The retail sales report offered an early read on the storm's impact on the economy. Its full impact will likely be felt in the November data.
Analysts estimate that the storm, which lashed the densely populated East Coast and caused up to $50-billion (U.S.) in damage, could shave as much as half a percentage point from fourth-quarter GDP.
"While we anticipate some positive payback later in the quarter, this suggests a soft start to the fourth quarter for real consumption," said Peter Newland, senior economist at Barclays in New York.
The Commerce Department said it had received indications from companies that the storm had both positive and negative effects on October's sales data.
Motor vehicle sales declined 1.5 per cent, the largest fall since August last year, after increasing 1.7 per cent in September. Auto manufacturers have blamed the storm for the drop in sales and expect a rebound in November.
Excluding autos, retail sales were unchanged last month after advancing 1.2 per cent in September, the Commerce Department said.
The storm also likely dented sales at clothing stores, which dipped 0.1 per cent after rising 0.4 per cent the prior month.
Building material sales surprisingly fell 1.9 per cent, defying expectations of a boost from pre-storm purchases. Building materials and garden equipment sales has increased 2.1 per cent in September.
Receipts at gasoline stations surprisingly rose 1.4 per cent last month. Gasoline sales had been expected to show some weakness because of a decline in gasoline prices during the month. Excluding gasoline, sales recorded their largest drop since May 2010.
Separately, the Labor Department said its seasonally adjusted producer price index slipped 0.2 per cent last month, the first decline since May, after increasing 1.1 per cent in September.
Economists had expected prices at farms, factories and refineries to increase 0.2 per cent last month.
Wholesale prices excluding volatile food and energy costs also fell 0.2 per cent, the largest fall since October 2010, after being flat in September. Economists had expected core PPI to rise 0.1 per cent.
The benign tone of the producer price inflation report should give the Fed room to keep its low interest rate environment. Consumer inflation is currently hovering around the Fed's 2 per cent target.
The U.S. central bank in September launched a third round of asset purchases, committing to buy $40-billion worth of mortgage-backed securities every month until there is a sustained improvement in the labor market.
It hopes the purchases will drive down borrowing costs.
Aside from superstorm Sandy, the retail sales report highlighted the sluggishness of domestic demand.
Sales of electronics and appliances fell 1.0 per cent, unwinding some of the prior month's boost from purchases of Apple's iPhone 5. Furniture sales fell 0.6 per cent after dropping 0.2 per cent in September.
So-called core retail sales, which exclude autos, gasoline and building materials, fell 0.1 per cent after increasing 0.9 per cent in September. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.
Last month's fall suggested consumer spending slowed early this quarter after ending the July-September period on a solid footing.