U.S. retail sales fell in October for the first time in three months as superstorm Sandy slammed the brakes on automobile purchases, suggesting a loss of momentum in spending early in the fourth quarter.
Other data on Wednesday showed little inflation, with wholesale prices falling in October for the first time since May, giving the Federal Reserve latitude to maintain its ultra easy monetary policy stance to nurse the economy back to health.
Retail sales dipped 0.3 percent last month after a 1.3 percent increase in September, the Commerce Department said. Economists had expected sales to fall 0.2 percent.
The retail sales report offered an early read on the storm's impact on the economy. Its full impact will likely be felt in the November data.
Analysts estimate that the storm, which lashed the densely populated East Coast and caused up to $50 billion in damage, could shave as much as half a percentage point from fourth-quarter GDP. They expect the economy to make up for any lost activity early next year.
"That will come back in the first quarter. Spending on rebuilding will filter into growth numbers gradually over a number of quarters," said Julia Coronado, chief North America economist at BNP Paribas in New York.
But much will depend on whether automatic tax hikes and government spending cuts that will suck about $600 billion out of the economy next year if Congress fails to act can be avoided. The so-called "fiscal cliff" has eroded business confidence.
The Commerce Department said it had received indications from companies that the storm had both positive and negative effects on October's sales data.
U.S. financial markets were little moved by the data. Stocks on Wall Street rose at the open as strong earnings from technology bellwether Cisco boosted sentiment.
U.S. Treasury debt prices dipped, while the dollar hit a session high against the yen.
AUTO SALES DECLINE
Motor vehicle sales declined 1.5 percent, the largest fall since August last year, after increasing 1.7 percent in September. Auto manufacturers have blamed the storm for the drop in sales and expect a rebound in November.
Excluding autos, retail sales were unchanged last month after advancing 1.2 percent in September.
The storm also likely dented sales at clothing stores, which dipped 0.1 percent after rising 0.4 percent the prior month.
Building material sales surprisingly fell 1.9 percent, defying expectations of a boost from pre-storm purchases. Building materials and garden equipment sales has increased 2.1 percent in September.
Receipts at gasoline stations surprisingly rose 1.4 percent last month. Gasoline sales had been expected to show some weakness because of a decline in gasoline prices during the month. Excluding gasoline, sales recorded their largest drop since May 2010.
Separately, the Labor Department said its seasonally adjusted producer price index slipped 0.2 percent last month, the first decline since May, after increasing 1.1 percent in September.
Economists had expected prices at farms, factories and refineries to increase 0.2 percent last month.
Wholesale prices excluding volatile food and energy costs also fell 0.2 percent, the largest fall since October 2010, after being flat in September. Economists had expected core PPI to rise 0.1 percent.
The benign tone of the producer price inflation report should give the Fed room to keep its low interest rate environment. Consumer inflation is currently hovering around the Fed's 2 percent target.
The U.S. central bank in September launched a third round of asset purchases, committing to buy $40 billion worth of mortgage-backed securities every month until there is a sustained improvement in the labor market.
It hopes the purchases will drive down borrowing costs.
Aside from superstorm Sandy, the retail sales report highlighted the sluggishness of domestic demand.
Sales of electronics and appliances fell 1.0 percent, unwinding some of the prior month's boost from purchases of Apple's iPhone 5. Furniture sales fell 0.6 percent after dropping 0.2 percent in September.
So-called core retail sales, which exclude autos, gasoline and building materials, fell 0.1 percent after increasing 0.9 percent in September. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.
Last month's fall suggested consumer spending slowed early this quarter after ending the July-September period on a solid footing.
"The picture of the US consumer appears to be one of continued stable and moderate spending," said Coronado.
(Editing by Andrea Ricci)