US economy shows signs of momentum in 4th qtr

• Retail sales rise 0.5 pct, gains broad
• Rise in sales excluding autos largest in seven months
• Wholesale prices fall 0.3 pct, first drop in four months

WASHINGTON (Reuters): The U.S. economy showed signs it maintained speed into the fourth quarter as retail sales rose in October and a gauge of manufacturing in New York state showed growth this month for the first time since May.

Other data on Tuesday showed muted price pressures at the factory level. That should provide the Federal Reserve with ammunition to give more aid to the economy in the face of increased threat to the recovery from Europe’s debt crisis.

“The economy seems to be in solid shape,” said Alex Hoder, an economist at FTN Financial in New York.

“Growth is not strong, but it is not too bad either, and much better than the fourth-quarter recession many were expecting just a few months ago.”

Retail sales increased 0.5 percent last month, the Commerce Department said, after rising 1.1 percent the prior month.

The fifth straight month of gains beat economists’ expectations for a 0.3 percent increase.

The stronger tone of the economy was further enhanced by a report from the New York Federal Reserve Bank showing factory activity in New York state grew in November for the first since May as shipments improved even though new orders fell. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions, but accounts for only a small slice of the overall manufacturing sector, which has been a key pillar of the recovery. The data supported recent reports suggesting the economy was gaining traction after stumbling in the first half of 2011, hurt by higher gasoline prices and disruptions to production after the March devastating earthquake and tsunami in Japan.

Stocks on Wall Street fell on concerns about Europe’s debt crisis, while U.S. Treasury debt prices rose. The dollar rose against a basket of currencies.

A third report showed the U.S. Producer Price Index fell 0.3 percent on weak gasoline prices. That was the first drop in four months and followed a 0.8 percent rise in September.

Despite the improving economic picture, most economists expect the Fed to ease monetary policy further early next year through bond purchases to stimulate demand and hiring.

“The odds favor the Fed doing a third round of quantitative easing in early 2012,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester Pennsylvania. “They really want to safeguard the U.S. economy as much as they can from another shock and the biggest concern is still Europe.” U.S. central bank officials said on Tuesday the economy still needed more support but continued to differ over the threshold for further action.

October’s broad rise in retail sales suggested that consumer spending would support growth in the fourth quarter, though economists worry that much of the spending is being funded from savings.

Consumer spending -- which accounts for more than two-thirds of U.S. economic activity -- rose at its fastest pace in nearly a year in the third quarter helping the economy to grow at a 2.5 percent annual pace.

“Consumer spending is holding up better than many people had anticipated, given a 9 percent unemployment rate and modest wage gains,” said Sweet.

“Consumers are having to dip into the savings, but I don’t think that they cutting into their savings as much as the data would suggest. Going forward, this pace of consumer spending is only sustainable if the labor market continues to heal.” Wal-Mart Stores Inc. Chief Executive Mike Duke said the retail giant’s U.S. customers were still worried about jobs and only one in 10 mothers taking part in its surveys view the economy as “good.” With food prices rising faster than most wages, some shoppers were concerned about holiday meals, the company said. Retail sales last month rose as receipts from motor vehicle dealers increased 0.4 percent, adding to the prior month’s 4.2 percent gain. Excluding autos, retail sales rose 0.6 percent, the largest increase in seven months, after advancing 0.5 percent in September.

Sales at food and beverage stores, sporting goods, hobby, book and music stores rose last month. There were also gains in electronics and appliances, and building materials.

But clothing store sales posted their largest decline since December 2010. Receipts at service stations fell, reflecting weak gasoline prices.

Lower gasoline and consumer goods costs depressed prices received by farms, factories and refineries last month. Excluding volatile food and energy, core wholesale prices were flat last month after climbing 0.2 percent in September.

Weak gasoline prices, combined with subsiding inflation pressures should ease the burden on stretched household budgets and support holiday shopping.

Core retail sales, which exclude autos, gasoline and building materials, rose 0.7 percent in October after advancing 0.5 percent the prior month. Core sales correspond most closely with the consumer spending component of the government’s gross domestic product report.