WRAPUP 3-U.S. retail sales gain shows some strength in economy

Mon May 13, 2013 1:37pm EDT

* Sales rise 0.1 percent in April, core sales up 0.5 percent
    * Autos, electronics, building materials lift sales
    * Economy has momentum despite tax hikes, budget cuts

    By Lucia Mutikani
    WASHINGTON, May 13 (Reuters) - U.S. retail sales
unexpectedly rose in April, pointing to underlying strength in
the economy and leading forecasters to bump up second-quarter
growth estimates.
    The surprise gain in retail sales, which account for about
30 percent of consumer spending, was the latest sign of
resilience in an economy that has been hit by belt-tightening in
Washington as the government tries to cut its budget deficit. 
    "It's more indication that our economy is growing. It's not
growing as rapidly as a lot of people would like, but things are
improving," said Tom Hall, an economics professor at Miami
University's Farmer School of Business in Oxford, Ohio.
    Retail sales edged up 0.1 percent after a 0.5 percent drop
in March as households bought automobiles, building materials
and a range of other goods, the Commerce Department said on
Monday. Economists had expected a decrease of 0.3 percent.
    So-called core sales, which strip out automobiles, gasoline
and building materials and correspond most closely with the
consumer spending component of the government's measure of gross
domestic product, increased 0.5 percent after an upwardly
revised 0.1 percent gain in March. February's core sales were
revised higher as well.
    Coming on the heels of data showing relatively sturdy job
growth over the last three months, the increase in core sales
helped to allay fears of an abrupt slowdown in the economy.
    The dollar rose against the euro and the yen, while prices
for U.S. Treasury debt moved lower. Stocks on Wall Street
retreated from recent record highs, but the data helped to limit
losses.
    Several economists raised second-quarter growth estimates on
the fairly strong core sales number. Goldman Sachs lifted its
forecast by three tenths of a percentage point to a 2.1 percent
annual rate, while JPMorgan pushed up its estimate by half a
point to 2 percent.
    The positive revisions to the core sales data for February
and March initially led economists to anticipate that the
government would revise higher its initial 2.5 percent estimate
for first-quarter GDP growth.
    However, a second report from the Commerce Department showed
business inventories were flat in March for a second month,
suggesting restocking was probably not as big a boost to growth
in the first three months of the year as initially thought.
    Even so, economists said the government's initial estimate
would likely hold, given that core retail sales for February and
March were stronger than earlier believed. 
    In addition, the lack of inventory accumulation should be a
boon to second-quarter growth as businesses will likely have to
stock up to meet steady demand from households. 
   
 
    
    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 Jan. 1. Across-the-board government spending cuts worth
about $85 billion are also weighing.
    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.
    Economists say the Federal Reserve's campaign to keep
interest rates low is also helping households, in part by
pushing up share prices and home values.
    "Those who doubt that the Federal Reserve is making an
impact just need to look at debt restructuring and wealth
effects on spending," said Diane Swonk, chief economist at
Mesirow Financial in Chicago. "There is no way the consumer
would be holding up so well without the support of lower
interest rates." 
    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. 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 of building materials and garden equipment supplies
rose, posting their largest rise since September, a reflection
of the housing market's recovery.
    Receipts at clothing stores recorded their biggest increase
since February last year. There were also increases in sales at
sporting goods, hobby, book and music stores, and electronics
and appliances stores. 
    Consumers also spent more at restaurants and bars.
    But furniture store sales were flat and receipts at grocery
stores fell.
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