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Fiscal cliff talk could be reason behind retail sales drop

| Thursday, Nov. 15, 2012, 12:01 a.m.

Retail sales fell in October for the first time in three months as superstorm Sandy slammed the brakes on automobile purchases, suggesting spending lost momentum early in the fourth quarter.

Other data on Wednesday showed wholesale prices falling last month for the first time since May, giving the Federal Reserve latitude to maintain its ultra-easy monetary policy stance.

Retail sales dipped 0.3 percent after a 1.3 percent increase in September, the Commerce Department said. Economists had expected sales to fall 0.2 percent.

“Sandy was a drag, but I expect we will see a gain in sales in November,” said Gus Faucher, a senior economist at PNC Financial Services Group in Pittsburgh.

Part of the drop in sales was payback after two straight months of solid gains. It could also be a sign of hesitation among consumers facing the prospect of higher taxes next year.

Even excluding autos, retail sales were flat last month.

Automatic tax increases and government spending cuts will siphon about $600 billion from the economy next year if Congress fails to act to avert them. This so-called fiscal cliff has already eroded business confidence.

“It's imperative that policymakers address the looming fiscal cliff now to give consumers some certainty heading into the holiday shopping season,” said Matthew Shay, president of the National Retail Federation.

Car makers blamed Sandy, the monster storm that lashed the densely populated East Coast and caused up to $50 billion in damage, for the abrupt pullback in sales last month.

Automakers said traffic at East Coast dealerships slowed as residents began to brace for the storm, which hit at the end of the month. Sales tend to build up late in the month, which likely amplified the impact.

Ford Motor Corp. estimated the industry lost sales of 20,000 to 25,000 vehicles, while Toyota put the loss at 30,000.

Separately, the Labor Department said its producer price index slipped 0.2 percent last month, the first decline since May. The index had increased 1.1 percent in September.

Economists had expected prices received by farms, factories and refineries to increase 0.2 percent last month.

Excluding volatile food and energy costs, wholesale prices fell 0.2 percent, the largest drop since October 2010.

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