Retail sales edge up, show some strength in economy

By Lucia Mutikani

WASHINGTON (Reuters) - Retail sales unexpectedly rose in April as households bought automobiles, building materials and a range of other goods, pointing to underlying strength in the economy in the face of government austerity.

The Commerce Department said on Monday retail sales edged up 0.1 percent after a 0.5 percent decline in March. Economists had expected retail sales, which account for about 30 percent of consumer spending, to drop 0.3 percent last month.

"The overall tone of this report was quite encouraging as it suggests that U.S. consumers are continuing to successfully navigate against the steady fiscal headwinds," said Millan Mulraine at TD Securities in New York.

The dollar rose against the yen and the euro, while prices for U.S. Treasury debt fell. U.S. stocks retreated from record highs in the previous session, but the retail sales data helped to limit losses.

So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, increased 0.5 percent after nudging up 0.1 percent in March.

The increase in core sales, coming on the heels of relatively strong job growth over the last three months, should help to ally fears of an abrupt slowdown in the economy early in the second quarter even as government budget cuts are starting to put a strain on manufacturing.

The gains prompted economists at JPMorgan to raise their second-quarter gross domestic product growth estimate by half a percentage point to 2 percent.

The economy grew at a modest 2.5 percent annual rate in the first three months of the year.

Second-quarter growth could also get a boost from inventories, after businesses kept lean stocks in the first three months of the year. A second report from the Commerce Department showed business inventories were flat in March for a second straight month.

FALLING GAS PRICES HELPING

Growth is being crimped by the end of a 2 percent payroll tax cut and higher tax rates for wealthy Americans, which kicked in on January 1. Across-the-board government spending cuts worth about $85 billion are also a drag.

But declining gasoline prices, which fell 14 cents in April, are helping to offset some of the drag on household income, freeing up money for discretionary spending.

"The message in today's numbers is that consumers are coming back to stores in the second quarter, in part because some of the price relief from lower gas prices is being spent elsewhere," said Chris Low, chief economist at FTN Financial in New York.

The tone of the retail sales report was mostly firm. Receipts at auto dealerships rose 1.0 percent after falling 0.6 percent in March. Excluding autos, sales dipped 0.1 percent after falling 0.4 percent in March.

Though falling gasoline prices pushed down receipts at gasoline stations, sales excluding gasoline recorded their largest increase since December.

Stripping out gasoline and autos, sales rose 0.6 percent.

Sales at building materials and garden equipment suppliers increased 1.5 percent, the largest rise since September. That reflects gains in homebuilding as the housing market recovery gains momentum.

Receipts at clothing stores rose 1.2 percent, the biggest increase since February last year.

Sales at sporting goods, hobby, book and music stores gained 0.5 percent. Receipts at electronics and appliances stores increased 0.8 percent, while sales at furniture stores were flat. Sales at restaurants and bars also increased.

However, receipts at grocery stores fell.

(Editing by Andrea Ricci)

Source: http://news.yahoo.com/retail-sales-edge-show-strength-economy-123207459.html

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