Newspaper article THE JOURNAL RECORD

Retail Sales Soar; Higher Interest Likely

Newspaper article THE JOURNAL RECORD

Retail Sales Soar; Higher Interest Likely

Article excerpt

WASHINGTON (AP) _ Retail sales got off to a roaring start for the holidays, adding pressure for the Federal Reserve to boost interest rates soon for the seventh time in less than a year.

The Commerce Department reported Tuesday that sales jumped 1.2 percent in November, double what had been expected. Sales of autos, furniture and building supplies led the way, following a revised 1.3 percent overall gain in October.

Meanwhile, the Labor Department reported that wholesale prices, as measured by the Producer Price Index, were up 0.5 percent in November, the first increase in three months.

While such a big increase in the PPI would normally stir inflation concerns, analysts dismissed the report as a statistical bounce back after two consecutive big monthly declines.

They noted that a measurement of core inflation, which excludes the often-volatile food and energy sectors, edged up a barely perceptible 0.1 percent.

While inflation is not a problem currently, analysts said the economy is growing far faster than the Fed would like. The retail sales report sent economists scrambling to revise upward their forecasts for overall growth as measured by the gross domestic product.

Many analysts said the GDP probably is rising at an annual rate of 4 percent or more, far higher than the Fed believes is acceptable for an economy starting to bump up against capacity constraints in the fourth year of an expansion.

"Economic conditions are much too hot for the Federal Reserve," said Ron Schreibman, an economist at the National Association of Wholesale-Distributors. "The question regarding another interest rate increase isn't `if' but `when.' "

Federal Reserve Chairman Alan Greenspan let Congress know last week that the economy was showing few signs of slowing, despite the six Fed rate increases so far this year, and that the real worry now is inflation.

Some analysts forecast the Fed will move at its meeting next Tuesday, just a month after its last rate increase. However, other analysts said the central bank, concerned about roiling financial markets in the wake of the Orange County, Calif. …

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