Economy brushed off shutdown, data show

• Economic reports show economy stayed on track in October
• Weak existing-home sales probably reflect stable prices%2C higher interest rates

Shutdown? Did the government shut down?

The economy continued to show signs that consumers mostly ignored Washington's budget impasse last month. A better-than-expected report on October retail sales Wednesday buoyed hopes that spending — the kind outside of Washington — was not much affected by politicians' theatrics.

The government said retail sales rose a better-than-expected 0.4% last month, and climbed 0.5% after excluding auto sales, home improvement supplies and a drop gasoline sales driven by lower prices, FT Advisors economist Brian Wesbury said. Combined with the Nov. 8 report that employers added 204,000 jobs in October, it bolsters the case that the impact of the shutdown may be less severe than first feared.

"When in doubt, go to the shopping mall and buy something is the message from today's data,'' Bank of Tokyo Mitsubishi UFJ economist Chris Rupkey said. "The economy is in a good position as we approach year-end, (and) 2014 may be better than we think.''

The reason for the gap between shutdown's impact on consumer confidence, which dropped sharply in October, and newer data that say the impact was small is fairly simple, independent economist Joel Naroff said.

Historically, drops in consumer confidence caused by political developments alone don't lead to corresponding slowdowns in buying, he said. Consumers actually hit the brakes when their confidence is shaken by economic events, such as the 2008 financial crisis, he added.

Consumers may also be getting a boost from very low inflation. The Labor Department reported Wednesday that consumer prices fell 0.1% in October, driven by a big drop in the price of gasoline and other energy products.

Even excluding the often-volatile price of food and energy, prices rose only 0.1%, and the core consumer price index has risen just 1.7% in the last year. Prices moved down during October in key consumer-budget areas like autos, medical services and apparel, and the price of shelter posted its smallest gain of 2013.

The one piece of economic data on Wednesday that fell short: existing home sales. They dropped 3.2% to an annual rate of 5.12 million homes during the month, according to the National Association of Realtors. NAR chief economist Lawrence Yun put the blame on an upward spike in interest rates over the summer, driven by expectations that the Federal Reserve would soon begin to slow its $85 billion monthly pace of mortgage and Treasury bond purchases.

Since the October sales mostly reflect deals that were agreed to in September or earlier but were finalized last month, they reveal little about consumers' spending habits during the month.

"Retail sales wouldn't be affected by the mortgage rate spike, and they reflect more recent consumer decisions,'' said Jed Kolko, chief economist for real estate website Trulia.com.