Retail sales rise in March

By Joanne Morrison

WASHINGTON (Reuters) - U.S. retail sales rose slightly more than expected in March but February sales were much higher than first estimated, pointing to continued strength in consumer demand as the manufacturing sector still falters.

Retail sales rose by 0.7 percent as warmer weather and an earlier-than-usual Easter holiday encouraged shoppers in March. Excluding automobiles and parts, sales were up a somewhat smaller-than-expected 0.8 percent, according to the Commerce Department report.

"Consumer spending has rebounded quite nicely and that may lead to a better-than-expected first-quarter growth rate," said Joel Naroff, economist at Naroff Economic Advisors in Holland, Pennsylvania.

A separate report offering an early read on the manufacturing sector, showed factory activity in the New York region was weaker than expected, thus far, in April after hitting a two-month low in March.

Another Commerce Department report showed U.S. business inventories were up an expected 0.3 percent in February. But excluding autos they advanced by 0.8 percent, the biggest increase in 11 months.

February's gain in overall inventories was in line with the median forecast of analysts polled by Reuters ahead of the report, but it showed an increase in retailer stockpiles as consumer demand has remained strong .

Manufacturing inventories were flat in February, while retailers increased their stockpiles by 0.3 percent. That reflected a 0.7 percent decrease in auto and parts inventories during the month, which was the biggest decline since November.

On the housing front, troubles in the subprime mortgage market pushed a gauge of home builder confident to a four-month low in April, according to the National Association of Home Builders.

"The tightening of mortgage lending standards in connection with the subprime crisis has shaken the confidence of both consumers and builders,' said NAHB Chief Economist David Seiders.

U.S. Treasury debt prices rose in afternoon trade on Monday after that key housing gauge came in weaker than expected. Stocks were up on unrelated news.

FEBRUARY SALES REVISED UP

Retail sales for February were revised up sharply and economists took this as a good sign the consumer -- which fuels two-thirds of economic growth -- is still going strong.

"The consumer in the first quarter appears to have been by far the strongest component of aggregate demand and this strength supports our view that gains in jobs and income are far more important to consumer spending than asset valuations, housing, or mortgage equity withdrawal," Bear Stearns economists wrote in a report after the release of the data.

Excluding gasoline, sales were up 0.4 percent in March after rising by the same margin the prior month.

The latest retail sales figure left economists thinking first-quarter economic growth may be stronger than first thought, particularly after the strong upward revisions to the February sales numbers.