WASHINGTON -- The 40-cent-a- gallon drop in gasoline prices in September masked underlying strength in retail sales reported by the government yesterday.
Led by a record 9.3 percent drop in gasoline sales in September, retail sales fell 0.4 percent in nominal terms, the Commerce Department said. After excluding gasoline sales, however, retail sales rose a healthy 0.6 percent.
The retail sales figures are not adjusted for inflation.
"This is a solid report, indicating that consumer spending is far from suffering the flame-out that many alarmists have been warning of," said Joshua Shapiro, chief economist at MFR research company.
The consumer is not "in any trouble despite the weakness in the housing market," said Drew Matus, an economist for Lehman Bros.
In another report the University of Michigan said its consumer sentiment index, a gauge of attitudes, rose unexpectedly to 92.3 in early October from 85.4 in September.
Auto sales were flat in September, contrary to reports from automakers showing increases in unit sales. Excluding motor vehicles, retail sales fell 0.5 percent, the biggest drop in three years.
Sales excluding both autos and gasoline rose 0.8 percent, the biggest increase since January.
Sales were particularly perky at the malls in September. Clothing store sales rose 3 percent, the biggest gain in a year. Sales at general merchandise stores rose 1.1 percent, while department store sales rose 1 percent.
Sales of durable goods were tepid. Furniture store and electronics store sales rose 0.2 percent, and sales at hardware stores rose 0.6 percent.
Lower prices at the pump are expected to free cash for other purposes, but the effect was limited in September.
"One might have thought that, given all of the dollar savings at the pump, at least an equivalent amount of dollars would have been plowed back into the economy," said Barry L. Ritholtz, chief market strategist for Ritholtz Research & Analytics.
"Indeed, the newfound energy savings could have led to a wealth effect, leading to more big-ticket items - including cars."
Sales were "punk," Ritholtz said.
Sales at restaurants and bars rose 1 percent in September after rising 1.2 percent in August, a sign that discretionary spending remains robust.
Economists were expecting retail sales to rise about 0.1 percent in September, with sales excluding autos expected to fall 0.1 percent, according to a survey conducted by MarketWatch.
Retail sales account for about half of consumer spending, which in turn makes up about two-thirds of final sales.
Most economists expect consumer spending to grow about 3 percent in the third quarter, a bit below the long-term trend.
"As lower home sales and construction activity lead to slower sales of home furnishings and appliances, along with job layoffs in the construction and real estate sectors, retail sales are bound to suffer, particularly as mortgage equity withdrawal continues to be reined in," said Michael Gregory, an economist for BMO Nesbitt Burns.
Retail sales rose a revised 0.1 percent in August, with sales excluding autos gaining 0.2 percent.