April 16, 2012 / 5:13 PM / 7 years ago

Strong U.S. retail sales ease growth worries

WASHINGTON (Reuters) - Americans shrugged off high gasoline prices in March and spent more strongly than expected, suggesting economic growth in the first quarter was probably not as weak as many had feared.

Retail sales increased 0.8 percent, the Commerce Department said on Monday, after rising 1.0 percent in February.

Last month’s gains handily beat economists’ expectations for only a 0.3 percent rise and indicated sturdy consumer spending in the first three months of 2012. Consumer spending accounts for more than two third of U.S. economic activity.

Analysts are confident that the economy grew at an annual pace of at least 2.5 percent in the January-March period, which would be a far more than the sub-2 percent rate many had expected earlier in the quarter.

“The economy is building a positive cycle of growing demand, improving labor market conditions and rising confidence,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Some economists believed warm temperatures last month may have helped retail sales, but others noted that some economic indicators, notably payrolls in March, did not show any weather boost.

The economy grew at a 3.0 percent rate in the fourth quarter. But the rising optimism over the economy was tempered by a report showing manufacturing in New York state slowed sharply this month as shipments of goods weakened.

Factories, however, hired more workers and received higher prices for their goods, giving the report a mixed tone.

The New York Federal Reserve Bank said on Monday its “Empire State” manufacturing activity index fell in April to 6.56, the lowest reading in five months, from 20.21 in March.

Another report showed confidence among homebuilders slipped in April for the first time in seven month amid expectations of a slower sales pace in the next six months.

Stocks on Wall Street rose after the retail sales report, though the rally later faded as persistent worries about Europe undermined confidence. Prices for Treasury debt traded higher while the dollar gained against the euro.


The rise in sales last month was broad-based, even though Americans paid 27 cents more per gallon of gasoline than they did the prior month.

So far, Americans appear to be taking rising gasoline prices in stride, thanks to a mild winter that has cut heating bills.

Economists said the signs of strength in consumer spending reduced the chances of further monetary easing by the Federal Reserve through bond purchases, or quantitative easing, even though job growth slowed in March.

The U.S. central bank meets next week and is not expected to make any major policy announcement.

“There may be some elements of a warmer winter and spring in these figures, but the sales data indicates, at the moment, that no additional quantitative easing is needed. It’s simply just not necessary,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

Motor vehicle sales extended the prior month’s gains. However, the 0.9 percent rise in sales was at odds with data from dealers showing a decline in unit sales.

Excluding autos, retail sales climbed 0.8 percent last month after advancing 0.9 percent in February.

Elsewhere, high gasoline prices pushed up receipts at service stations. There were sturdy increases in the sales of clothing, furniture, building materials and garden equipment, restaurants and bars, electronics and appliances.

Excluding autos and gasoline, sales advanced 0.7 percent in March, adding to the prior month’s 0.5 percent gain.

A second report from the Commerce Department showed business inventories increased 0.6 percent to a record $1.58 trillion as auto dealers restocked to meet increased demand for motor vehicles from consumers.

Business sales increased 0.7 percent to a record $1.24 trillion in February, after advancing 0.4 percent the prior month. At February’s sales pace it will take 1.28 months for businesses to clear shelves, unchanged from January.

Additional reporting by Leah Schnurr in New York; Editing by Andrea Ricci

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