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U.S. retail sales increased more than expected in October as households stepped up purchases of motor vehicles and a range of other goods, suggesting consumer spending picked up early in the fourth quarter, which could help to support the economy.

The solid retail sales reported by the Commerce Department on Wednesday and signs of a slowdown in inflation raised cautious optimism the economy could avoid an anticipated recession next year or just experience a mild downturn.

“We might be in for a soft landing after all,” said Paul Ashworth, chief North America economist at Capital Economics in Toronto.

Retail sales rose 1.3 per cent last month after being unchanged in September. Economists polled by Reuters had forecast sales rising 1.0 per cent. Retail sales are mostly goods and are not adjusted for inflation. They increased 8.3 per cent year-on-year in October.

One-time tax refunds in California, which saw some households receiving as much as $1,050 in stimulus checks, likely helped to underpin sales. In addition, Amazon held a second Prime Day promotion in October.

The broad increase in sales last month was led by motor vehicles, with receipts at auto dealers rebounding 1.3 per cent, reflecting significant improvements in supply. Furniture stores sales increased 1.1 per cent.

Sales were also buoyed by higher gasoline prices, with receipts at service stations rising 4.1 per cent.

Online retail sales jumped 1.2 per cent. Sales at food services and drinking places, the only services category in the retail sales report, increased 1.6 per cent. But electronics and appliance store sales slipped 0.3 per cent.

There were also decreases in receipts at general merchandise stores as well as sporting goods, hobby, musical instrument and book stores. Clothing stores sales were flat.

Massive savings accumulated during the COVID-19 pandemic, and strong wage gains amid a tight labour market, have generally helped consumers to weather higher prices and borrowing costs. Households are also borrowing to maintain spending.

That support is expected to fade next year as tighter monetary policy dampens overall demand, weighing on the labour market and the economy. Low-income households are believed to have already exhausted their pandemic savings.

The National Retail Federation forecast this month that holiday sales would grow between 6 per cent and 8 per cent this year. While that would be a step down from the 13.5 per cent notched in 2021, it would be well above the 4.9 per cent average over the past 10 years.

The Federal Reserve has raised its policy rate by 375 basis points this year from near zero to a 3.75 per cent-4.00 per cent range as it battles rampant inflation in what has become the fastest rate– hiking cycle since the 1980s.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.7 per cent last month. Data for September was revised higher to show these so-called core retail sales rising 0.6 per cent instead of 0.4 per cent as previously reported.

Core retail sales correspond most closely with the consumer spending component of gross domestic product.

A steady pace of consumer spending and a smaller import bill helped GDP to rebound at a 2.6 per cent annualized rate in the third quarter after contracting in the first half of the year.