WASHINGTON (Reuters) - U.S. retail sales rebounded sharply in October as purchases of motor vehicles and building materials surged, but data for the prior two months was revised lower and the underlying trend suggested that consumer spending was probably slowing down.

FILE PHOTO: A woman walks with shopping bags at Bryant Park in New York, U.S. December 2, 2016. REUTERS/Shannon Stapleton

Still, the report on Thursday from the Commerce Department showed broad gains in sales ahead of the holiday shopping season, which bodes well for consumer spending and the overall economy as the fourth quarter gets under way.

“This morning’s release confirms our expectations of a strong holiday season,” said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “But, as the calendar flips to 2019, we expect a further moderation in spending, as the boost from tax cuts will start to fade for consumers.”

Retail sales increased 0.8 percent last month. Retail sales in September slipped 0.1 percent instead of rising 0.1 percent and sales in August were also weaker than previously thought.

Economists polled by Reuters had forecast retail sales increasing 0.5 percent in October. Sales rose 4.6 percent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3 percent last month. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Data for September was revised lower to show core retail sales rising 0.3 percent instead of gaining 0.5 percent as previously reported. Core retail sales fell 0.2 percent in August rather than being unchanged.

While that suggests some loss of momentum in consumer spending, which accounts for more than two-thirds of U.S. economic activity, consumption is being supported by the Trump administration’s $1.5 trillion tax cut package. Declining oil prices are seen aiding retail sales in the months ahead.

A robust labor market, marked by a 3.7 percent unemployment rate, is also underpinning spending. The lowest jobless rate in nearly 49 years is boosting wages, with annual wage growth recording its biggest increase in 9-1/2 years in October.

Jobs market strength was underscored by a separate report from the Labor Department on Thursday showing a marginal increase in the number of Americans filing for unemployment benefits last week.

Strong domestic demand and a tightening labor market support views that the Federal Reserve will increase interest rates in December for the fourth time this year. The U.S. central bank last Thursday kept rates unchanged, but said data “indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate.”

“The backdrop of strong growth and subdued inflation should keep the Fed on track for continued gradual rate hikes through the first half of 2019,” said Veronica Clark, an economist at Citigroup in New York.

The dollar was trading higher against a basket of currencies after Thursday’s data, while U.S. Treasury yields fell. Stocks on Wall Street were mixed.

BROAD GAINS

The retail sales pace, if sustained, could keep the economy on a solid growth path even as business investment is slowing, the trade deficit is expected to deteriorate further and the housing market continues to weaken.

The economy’s strength was highlighted by higher-than-expected quarterly sales from Walmart on Thursday. The world’s largest retailer raised its full-year outlook.

Though the Commerce Department said it could not isolate the impact of Hurricanes Florence and Michael on October’s retail sales, the storms probably buoyed purchases of automobiles and building materials last month amid recovery efforts.

Auto sales jumped 1.1 percent last month after falling 0.1 percent in September. Sales at building material stores surged 1.0 percent in October.

There were also increases in sales at clothing stores, online retailers and service stations last month. Americans also spent more on hobbies and at bookstores, while cutting back on furniture purchases.

But spending at restaurants and bars slipped 0.2 percent, likely hurt by Michael, which soaked the Florida Panhandle in mid-October. Sales at restaurants and bars dropped 1.5 percent in September.

Other data on Thursday offered a mixed picture of the manufacturing sector in early November. The New York Fed said its Empire State general business conditions index rose to a reading of 23.3 this month from 21.1 in October.

A slight moderation in the new orders index was offset by strong increases in labor market measures.

Separately, a survey from the Philadelphia Fed showed a slowing in factory activity in the mid-Atlantic region this month, with its current general activity index tumbling to a reading of 12.9 from 22.2 in October amid a sharp slowdown in new orders.

Firms, however, remained upbeat about business conditions over the next six months. There was also a strong improvement in capital expenditure plans.

“The real risk to the outlook for manufacturers remains global trade risks,” said Adam Ozimek, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “If this can be avoided, demand should remain strong for manufacturers.”