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U.S. retail sales move higher; consumer spirits rise

A modern outdoor shopping mall is shown in San Diego, California September 10, 2014. REUTERS/Mike Blake

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. retail sales rose broadly in August and consumer sentiment hit a 14-month high in September, supporting expectations for sturdy economic growth in the third quarter.

The data on Friday helped ease concerns about soft consumer spending, which had lagged other fairly upbeat economic data covering manufacturing, services and housing. Several big Wall Street firms bumped up their GDP growth forecasts on the news.

"It is further indication that the underlying positive momentum in the U.S. economy is being sustained," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The Commerce Department said retail sales, which account for a third of consumer spending, increased 0.6 percent last month after an upwardly revised 0.3 percent gain in July, as Americans stepped up purchases of automobiles and a range of other goods.

The only decline was at gasoline stations, but that reflected declining prices at the pump that should free up income to support spending in the months ahead.

In a sign of underlying strength, so-called core sales increased 0.4 percent in August. Core retail sales exclude purchases of automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of gross domestic product.

Separately, the Thomson Reuters/University of Michigan's consumer sentiment index rose to 84.6 in early September, the highest reading since July 2013, from 82.5 in August. A gauge of income expectations hit its highest level since November 2008.

A third report showed only a modest increase in business inventories in July, suggesting restocking would not provide a boost to growth in the third quarter. The economy grew at a 4.2 percent pace in the second quarter.

U.S. Treasury debt prices fell, while the dollar held near a six-year high against the yen on the data. U.S. stocks were trading lower as a new round of U.S. sanctions against Russia hit energy shares.


August's increase in core retail sales followed an upwardly revised 0.4 percent gain in July that helped put them 4.1 percent above their year-ago level. While that remains below a pre-recession pace of about 5.5 percent, it nevertheless bodes well for economic growth.

Macroeconomic Advisers raised its third-quarter GDP growth estimate by two-tenths of a percentage point to a 3.3 percent annual rate, as did Goldman Sachs. Morgan Stanley raised its forecast to a 3.5 percent rate from 3.4 percent.

Economists said it was not clear whether the recent raft of positive data would prompt the Federal Reserve next week to signal it was moving a bit closer to raising interest rates.

The Fed, which meets on Tuesday and Wednesday, has said it would likely wait a "considerable time" after ending a bond-buying program in October before hiking rates from near zero.

"Retail sales were still somewhat weaker in the third quarter and recent labor market indicators have been somewhat less encouraging in August and September," said Scott Anderson, chief economist at Bank of the West in San Francisco.

"This may be enough to keep the doves at the Fed in wait-and-see mode," he said.

(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Paul Simao)