Notch two more favorable data points for the nation's economy: Retail sales posted the largest monthly gain in three years and a key regional manufacturing index rose to its highest level since the recession started.

True, we'll have to place a qualifier on retail sales -- it's generally accepted that the government's "cash for clunkers" program simply encouraged people who would have bought a car next year to do so this year instead. But the New York Fed's manufacturing survey continues to show a factory sector that's starting to revive, a development that could help pull the U.S. economy out its pronounced recession.
Retail sales rose a seasonally-adjusted 2.7 percent in August, the Commerce Department announced Tuesday, bolstered by the "clunkers" program. Auto sales surged 10.6 percent in August.

Economists surveyed by Bloomberg News had expected August retail sales to increase 2 percent. Sales fell 0.2 percent in July.

Excluding autos, August retail sales rose just 1.1 percent, an indication of the substantial impact of the clunkers program. Still, the gain outpaced the 0.4 percent August core decline forecast by Bloomberg News.

Even so, retail sales are down 5.3 percent on a year-over-year basis, reflecting the sustained pull back by consumers during the recession.

Meanwhile, manufacturing in the New York area continued to show improvement in September -- expanding at its fast pace in about 2 years.

The Empire State Manufacturing Index rose to 18.88 in September, from 12.1 in August, the New York Federal Reserve announced Tuesday. The index was at a negative 0.55 in July. Economists surveyed by Bloomberg News had expected the index to rise to 14.0 in September.

Sentiment among manufacturers continued to improve in September, according to the New York Fed. Forty percent of those surveyed said business conditions had improved, while 20 percent said they had worsened. Also, the six-month outlook index rose to 52.3, its highest level since 2004.

Most manufacturers forecast that prices would probably stay near current levels over the next year, the survey found. But any change would likely be toward higher prices, they said.

Economists monitor the Empire State index because it typically provides a early-read on larger manufacturing surveys released later, such as the Institute for Supply Management's manufacturing survey.



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