Rise in retail sales eases recession fear

WASHINGTON (Reuters) - An unexpected rise in U.S. retail sales during January boosted hopes the United States might avoid a recession despite the pressure that a weakening housing market is putting on consumers' pocketbooks.

The Commerce Department said on Wednesday that sales at U.S. retailers rose 0.3 percent in January on higher sales of new cars, gasoline and clothing.

That was sharply contrary to Wall Street analysts' forecasts for a 0.2 percent drop and helped soothe economic worries that had been driven in part by a surprise 0.4 percent fall in December sales announced a month ago.

The data gave a lift to stock prices and the blue chip Dow Jones industrial average .DJI closed up 178 points, or 1.5 percent. The rush to stocks hurt prices for government bonds, which were already pressured as traders reassessed bets on further interest-rate cuts from Federal Reserve.

Analysts were skeptical about some portions of the report, especially its indication of stronger new-car sales, but said it nonetheless showed consumers still were willing to buy.

"As the consumer goes, so goes the economy," said economist Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania. "It appears the consumer may have slowed down, but not left the field of battle."

Analysts agree the risk of recession is high, but said the report suggested it was too soon to say one had begun.

"The report strengthens the case of those who think we'll skirt a recession," said Jim Awad, chairman of W.P. Stewart & Co Ltd in New York. Awad cautioned, however, that the optimism might be short-lived.

"This is subject to revision and it's inconsistent with other incoming data indicating softness and weakness in the economy," he said.

SUSPICION ON DATA

The department said car sales rose 0.6 percent last month, a figure some private-sector analysts said was suspect.

"This is completely at odds with auto industry data, which reported a 5.6 percent drop in overall unit sales in January," said Brian Bethune, an economist with Global Insight in Lexington, Massachusetts.

Excluding autos, sales were still up 0.3 percent, reversing a 0.3 percent fall in December. Wall Street analysts were expecting a 0.2 percent gain in sales excluding autos.

"The data is clearly a surprise to the upside," said Omer Esiner, a market analyst with Ruesch International in Washington. "In the near term, it does ease some recession concerns."

Despite the higher headline number for sales, there were declines in many categories, which implied the consumer spending that fuels 70 percent of the economy's activity was being pinched. Furniture sales fell 0.5 percent, building material sales were down 1.7 percent and department store sales declined by 1.1 percent.

The retail sales report showed gasoline sales up 2.0 percent in January after being flat in December, but analysts said that likely reflected higher prices, not stronger demand. Excluding gasoline, sales rose 0.1 percent.

A separate report from the Commerce Department showed that inventories at U.S. factories, wholesalers and retailers climbed by a higher-than-forecast 0.6 percent in December as sales fell 0.5 percent, the biggest decrease in nearly a year.

HOME LOAN APPLICATIONS DIP

President George W. Bush on Wednesday signed into law a $152 billion fiscal stimulus package that will provide tax rebates to 130 million Americans in the hope of adding some spending punch to an economy hit hard by a housing downturn and tight credit.

The government plans to start mailing rebate checks in May and expects to wrap up sometime in the summer, an effort that could give the economy a lift in the third quarter.

A third report on Wednesday from the Mortgage Bankers Association showed mortgage applications slipped 2.1 percent last week after reaching a nearly four-year high, with both purchase and refinance applications falling.

Applications for home refinancing had been particularly strong over the past month as average 30-year mortgage rates slumped as low as 5.49 percent, the lowest level since June 2005. Last week however, rates rose to 5.72 percent.

(Additional reporting by Lynn Adler, Gertrude Chavez and Ellis Mnyandu in New York, )

(Reporting by Glenn Somerville)