Update: Retail Sales Slow to 0.1% Growth

Updated from 10:58 a.m. EDT

Retail sales slowed in October, primarily because of a dip in auto sales, but consumer spending levels remain 7% higher than a year ago, according to new data.

The Department of Commerce reported Tuesday that retail sales grew by an estimated 0.1% in October on total estimated sales of $273.2 billion. Excluding sales of cars and trucks, retail sales were up 0.4% in October.

Analysts were not surprised by the weaker sales growth in October, saying a slight slowdown was expected after the sharp growth in September sales. Retail sales have been volatile this year, down a half percent in April and flat in August before jumping 0.9% in September on a month-to-month basis.

Maury Harris, chief U.S. economist at the UBS Warburg Economics Group, said the slowdown in sales growth indicated a "soft landing" -- in part because, while job growth is slowing, wages are still rising. Hourly earnings were up 0.4% in October.

Harris had forecast total retail sales to be unchanged in October, with all but vehicle sales up 0.4%. Harris said October's gains were broad-based, and, despite disappointing reports of chain store sales for October, clothing and accessories were still up 1% while general merchandise sales were up 0.4%.

Still, the combination of higher interest rates and energy prices as well as the recent weakness in the equity markets has slowed down consumer spending.

Nearly decade-high oil prices and record-high natural gas prices combined with a 175-basis-point increase in the benchmark federal funds rate over the past 18 months has made it more costly for consumers to fuel their cars, heat their homes, and take out loans. Higher energy prices have also been blamed for pushing up prices of everything from airline tickets to apartment rents as companies and landlords pass on higher fuel costs to consumers.

The Federal Reserve board meets Wednesday, but is expected to leave benchmark borrowing rates unchanged at 6.5%. Board members have warned that the risks to the economy remain weighted toward higher inflation, but the series of rate hikes it has already imposed appears to have slowed down the economy already.

Recent volatility in the equity markets -- the Nasdaq Composite Index fell below 3000 points on Monday for the first time in a year -- has also curbed consumers' spending habits. Over the past three months, retail sales have advanced at a 3.8% annualized rate, well below the double-digit growth earlier in the year, according to Kelly Whitman, an analyst at Economy.com.

Whitman said October's release indicates that, while consumer spending growth has moderated, the levels are more sustainable. The retail analyst expects the consumer demand to support another good holiday shopping season for retailers, though sales aren't likely to match the lofty heights of last year.

Retailers could use a boost this season. The slowdown in sales over the past few months has hurt the industry, with a range of retailers -- from discount giant Kmart (KM Quote) to department stores like J.C. Penney (JCP Quote) to specialty stores like Gap (GPS Quote) -- blaming sagging sales for poor quarterly results.

October sales of durable goods remain 4.5% above last year, but sales at auto dealers decreased by 1% in October, contributing to a half-percent decline in overall durable goods sales during the month. Sales of big-ticket household goods remain higher, with building materials and hardware and garden supply stores reporting strong growth during the month.

Nondurable goods increased 0.4% from September and were up 8.8% from October 1999. Despite higher prices, gas sales were up a whopping 17% from a year ago and up 0.9% from the previous month. Drugstore sales were up 11.3% from last year and up 1.4% from September.