Retail Sales May Offer Hopeful Economic Sign

The economy has shown promising hints of recovery over the last few months, only to yield disappointing news weeks or months later. Economists hope today's report on retail sales breaks that pattern.

The Commerce Department released retail sales data for October today, showing retail sales rose 1.2 percent. That's big news, since the consensus forecast among analysts and economists was for a 0.7 percent rise.

That would have been encouraging, in and of itself, but the actual numbers - nearly twice the estimate - are causing some economists to actually smile. For the economy to really recover, they say, consumers have to start spending again.

Since the credit meltdown in October 2008, consumers haven't been doing much shopping, Instead, they've been paying down debt.

The October 2010 report shows retail sales growing at the strongest rate since. This is the fourth consecutive month of strong growth in retail sales.

Motor vehicle sales increased 5.0 percent. Sales excluding automotive dealers increased 0.4 percent, comparable to private-sector expectations of a 0.4-percent gain.

Sign of confidence?

"Today's retail sales data continue to show improving consumer confidence in the economic recovery, Said Commerce Secretary Gary Locke said. "Over the past month, we have seen a series of positive economic reports, including new car sales, manufacturing and employment. As we approach the holiday season, private-sector forecasts show that U.S. retailers will see a boost in sales. While the data and private-sector expectations are encouraging, we realize there's still more work to do to help put people back to work in good-paying jobs.

While retail sales have been going up, so has the stock market. The two might, in fact, be related, with many small investors willing to spend again now that their portfolios are showing growth.

But unemployment remains stubbornly high. Businesses sitting on large stockpiles of cash have expressed reluctance to invest in new employees until they get a firmer read on the direction of the economy.

The question they may be pondering today is, are October's retail signs a real indicator or another frustrating head fake?