VOL. 127 | NO. 75 | Tuesday, April 17, 2012
US Economic Outlook Brightens as Retail Sales Rise
CHRISTOPHER S. RUGABER | AP Economics Writer
WASHINGTON (AP) – Americans bought more electronics, started home improvement projects and updated their wardrobes last month, inspired by warmer weather and a healthier job market.
U.S. retail sales rose 0.8 percent in March, the Commerce Department said Friday.
The increase capped a strong quarter of gains and contributed to a brighter outlook among economists for growth in the January-March quarter. Businesses are responding by restocking their shelves at a steady pace, a sign that they expect the trend to carry over into the spring.
More retail spending also helped offset a decline in confidence among homebuilders. And it could ease concerns about March hiring, which slowed to half the pace of the previous three months.
"Retail sales soared in March with stores in just about every category recording sharp increases over February levels," said Joel Naroff, chief economist at Naroff Economic Advisors. "And let's not forget, the February spending was strong."
The Dow Jones industrial average rose more than 125 points in afternoon trading. But broader indexes were mixed. The Standard & Poor's 500 index gained roughly 4 points, while the Nasdaq composite fell 15 points.
The retail sales report is the government's first look each month at consumer spending, which represents 70 percent of economic activity.
Consumers are spending more despite paying higher gas prices and seeing little growth in their wages.
Shoppers bought more furniture, groceries, clothes and sporting goods last month. They also paid more for gas.
Still, excluding cars, gas and food, sales rose 8.2 percent in the first quarter, the most in two years.
The gain pushed total retail sales to a record high of $411.1 billion, 24 percent higher than the recession low hit in March 2009.
"This is a good report," said Chris Christopher, an economist at IHS Global Insight. "Consumers are spending despite feeling the pump price pinch."
Other recent data suggest stronger growth in the January-March quarter.
Business stockpiles rose a seasonally adjusted 0.6 percent in February, the Commerce Department said.
Larger stockpiles require businesses to order more goods. That leads to more factory production, which boosts growth.
And overall sales – which includes wholesalers and manufacturers as well as retailers – grew 0.7 percent, more than inventories. That's a good sign because it is evidence that companies aren't building too much inventory, which can lead to production cutbacks.
James Marple, an economist at TD Bank, forecasts the economy expanded by about 2.7 percent at an annual pace in the January-March quarter. That's a full point higher than his estimate a month ago.
Still, the housing market has struggled to gain momentum.
The National Association of Home Builders/Wells Fargo said Monday that its builder sentiment index fell for the first time in seven months.
Builders also expressed weaker confidence in sales over the next six months.
"What we're seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September," said David Crowe, chief economist with the homebuilders' group. "This is partly because interest expressed by buyers in the past few months has yet to translate into expected sales activity."
Also, an index measuring manufacturing activity in New York fell to its lowest level in five months. The New York Federal Reserve Bank's Empire State survey fell to 6.6 in April from 20.2 in the previous month.
Many economists cautioned that warm weather likely contributed to the rise in retail sales. More job gains and greater income growth is needed to sustain spending.
"There's a limit to how much people can dip into savings to finance consumption," said Neil Dutta, an economist at Bank of America Merrill Lynch.
Americans are more confident in the economy after seeing hiring strengthen this winter. Job gains averaged 246,000 per month from December through February. Hiring slowed to half that pace in March, although economists have suggested the lull may be temporary.
More hiring has helped lower the unemployment rate from 9.1 percent in August to 8.2 percent in March. Still, the stronger hiring hasn't translated into higher salaries. Americans' pay isn't keeping pace with inflation. That, along with higher gas prices, could restrain consumer spending later this year.
Gas prices rose more slowly last month, according to a separate report released last week. And in the last two weeks, they are showing signs of leveling off. That may also be giving consumers more incentive to spend.
AP Economics Writer Derek Kravitz contributed to this report.
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