Retail sales rose broadly in October and a gauge of New York state manufacturing showed growth this month for the first time since May, suggesting the economy started the fourth quarter with vigor.

Another report showed wholesale prices fell during October as gasoline prices dropped, signaling a cooling of fuel-driven inflation pressures that have hit consumers' pocketbooks.

This is more than enough to keep the economy going, said Eric Green, chief U.S. economist at TD Securities in New York.

The U.S. economy appears to be gaining strength following a dicey summer where a political battle over the national debt damaged confidence and Japan's March earthquake disaster rippled through the country's factories.

But it is by no measure out of the woods.

Europe's snowballing debt crisis looks likely to push the United States back into recession early next year, research from the San Francisco Federal Reserve Bank showed on Monday, although many economists' predictions are less dire.

The economy is showing some resilience at this point which is encouraging, said Sean Incremona, and economist at 4CAST in New York. But we really want to see this sustained and there are a lot of risks to the outlook that could easily bump us off again.

Total retail sales increased 0.5 percent last month, the Commerce Department said on Tuesday. That was a more modest gain than September's reading but above economists' expectations.

Separately, the New York Fed's Empire State general business conditions index rose to 0.61, its strongest reading since May, from minus 8.48 the month before. Economists polled by Reuters had expected a negative reading.

With signs of strength from consumers and factories, economic growth during the fourth quarter might even exceed the 2.5 percent annual rate clocked during the previous three-month period, Barclays Capital said in a report.

U.S. stocks rose despite fears over the European crisis, while government debt prices pared gains on the U.S. data. The dollar held gains against the euro.

In the 12 months to October, retail sales were up 7.2 percent. While October's retail sales report showed broad gains, weak income growth remains a constraint.

Consumer spending -- which accounts for more than two-thirds of U.S. economic activity -- rose at its fastest pace in nearly a year in the third quarter. But households are significantly cutting back on saving to fund their spending.

Wal-Mart Stores Inc. Chief Executive Mike Duke said the retail giant's U.S. customers were still worried about jobs and only one in 10 mothers taking part in its surveys view the economy as good.

With food prices rising faster than most wages, some shoppers were concerned about holiday meals, the company said.

Retail sales last month rose as receipts from motor vehicle dealers increased 0.4 percent, adding to the prior month's 4.2 percent gain.

Excluding autos, retail sales rose 0.6 percent, the largest increase in seven months, after advancing 0.5 percent in September.

Sales at food and beverage stores increased 1.1 percent, while receipts at sporting goods, hobby, book and music stores gained 1.3 percent. Sales of electronics and appliances soared 3.7 percent, while receipts from building material retailers increased 1.5 percent.

But clothing store sales fell 0.7 percent last month, the largest decline since December 2010, while furniture sales declined 0.7 percent.

Receipts at gasoline stations fell 0.4 percent last month after rising 0.7 percent. The decline reflects weak gasoline prices. According to the U.S. Energy Information Administration, gasoline prices fell 4.39 percent or 16 cents to $3.506 a gallon in October.

Excluding gasoline, retail sales rose 0.7 percent.


Lower gasoline and consumer goods costs depressed prices received by farms, factories and refineries last month.

Excluding volatile food and energy, core wholesale prices were flat last month after climbing 0.2 percent in September.

Weak gasoline prices, combined with subsiding inflation pressures should ease the burden on stretched household budgets and support holiday shopping.

Core retail sales, which exclude autos, gasoline and building materials, rose 0.7 percent in October after advancing 0.5 percent the prior month. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.

However, not all data showed economic vigor. U.S. business inventories failed to increase in September for the first time since December 2009, the Commerce Department said in a separate report. That pointed to a likely downward revision to the third-quarter growth estimate.

(Additional reporting by Jason Lange in Washington; and Richard Leong and Chris Reese in New York; Editing by Chizu Nomiyama)