U.S. Retail Sales Popped in October, Spurred by Auto and iPhone Sales

U.S. retail sales rose 0.5% in October, beating expectations and giving the economy a much-needed boost as it entered the final quarter of 2011. Last month’s gain followed a 1.1% increase in September.

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Demand for automobiles climbed in October, while purchases of electronics jumped by the most in two years. Consumer spending, which accounts for roughly 70% of the U.S. economy, must continue its upward trend in order to bolster against the growing European credit crisis that continues to threaten sales overseas.

Retailers like Macy’s (NYSE:M) and Kohl’s (NYSE:KSS) plan to use discounts to lure in shoppers during the holiday season, while Apple (NASDAQ:AAPL) is likely to see already booming iPad and iPhone sales take off.

“The rise in retail sales suggests a very strong start to the quarter,” said Millan Mulraine, a senior U.S. strategist at TD Securities in New York, ahead of today’s report. “Consumers are finding some reassurance in the fact that the economy isn’t going into a recession and the labor market isn’t going belly up.”

Sales at electronics stores climbed 3.7% in October, the most since 2009, while demand at non-store retailers, including Internet and mail-order companies, rose 1.5%, the most in nine months. Both of those figures may reflect demand for Apple’s latest iPhone, which went on sale in the U.S. last month. Apple sold more than 4 million iPhone 4S devices in its first three days of availability.

Nine of the Commerce Department’s 13 major retail categories showed growth last month. Sales at automobile dealers rose 0.4% in October, with auto purchases reaching a 13.2 million annual rate, the highest since February and up from 13.04 million in September.

Purchases excluding autos increased 0.6%, while purchases excluding autos, gasoline, and building materials — the figures used to calculate gross domestic product — also climbed 0.6% in October after a 0.5% increase in September.

Retailers are hoping to help those numbers along through marketing and heavy promotions, but ultimately a stronger labor market is needed to speed up growth and to protect the U.S. from risks related to Europe’s sovereign debt crisis.

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The U.S. unemployment rate has hovered around 9% for more than two years, and payrolls last month climbed by just 80,000 workers, the least since June. Hourly wages adjusted for inflation were down 1.8% in the 12 months ending in September, while the savings rate dropped to its lowest level since December 2007, as the lack of income forced households to put away less in reserve.