WASHINGTON (Reuters) - Retail sales posted their largest gain in five months in February, with Americans feeling confident enough to buy more cars and other goods even as they paid more for gasoline.
In the latest sign of improvement in the economy’s prolonged recovery from the 2007-2009 recession, sales rose 1.1 percent last month, the Commerce Department said on Tuesday, after a 0.6 percent increase in January.
The sales gains were broad-based and numbers for previous months were revised higher, suggesting rising employment was cushioning consumers from a steep run-up in gasoline prices.
“It signals that the improving economic fundamentals, particularly strong employment growth, are being translated into higher spending activity,” said Millan Mulraine, senior macro strategist at TD Securities in New York.
“This building momentum is especially encouraging for the recovery as it suggests that the self-reinforcing positive dynamics between jobs growth and spending activity could foster a more robust economic recovery in the coming months.”
The data helped lift U.S. stocks, with the Standard & Poor’s 500 Index touching its highest intraday level since June 2008. U.S. Treasury debt prices tumbled, while the dollar reached an 11-month high against the yen.
Federal Reserve officials, at the end of a one-day meeting on monetary policy, acknowledged the recent improvement in economic data, but restated their concerns that the unemployment rate remained too high at 8.3 percent.
The U.S. central bank offered no clues on whether it would undertake another round of bond purchase to further drive down interest rates and support the economy.
PENT-UP DEMAND FOR CARS
With sales for December and January revised higher, the report suggested consumer spending has not been as weak as previously thought.
Consumer spending, which accounts for about 70 percent of U.S. economic activity, had been reported as being flat in the three months through January, when adjusted for inflation.
The report spurred some economists, including those at Goldman Sachs, to raise their forecasts for first-quarter gross domestic product. Goldman Sachs now expects GDP to increase at a 2.0 percent annual rate, instead of 1.8 percent.
Economists also expect fourth-quarter GDP growth to be revised up to as high as a 3.5 percent pace from 3.0 percent when the final reading is released later this month.
Sales last month were buoyed by a 1.6 percent rise in sales of motor vehicles, reflecting pent-up demand and growing confidence in the economy as job creation speeds up.
A devastating earthquake and tsunami in Japan caused disruptions to auto production last year and left dealers without models that consumers wanted to buy.
Excluding autos, retail sales advanced 0.9 percent, building on January’s upwardly revised 1.1 percent gain.
A separate report from the Commerce Department showed auto dealers raced to rebuild stocks in January to meet the growing demand. Motor vehicle inventories increased in January at their quickest pace since July 2010, giving a boost to overall business inventories.
Sales at gasoline stations surged 3.3 percent to a record $46.9 billion - a figure that reflects higher gasoline costs. The percentage gain was the largest since March last year and followed a 1.9 percent increase in January.
Excluding autos and gasoline, sales rose 0.6 percent in February after increasing 1.0 percent the prior month. Gasoline accounted for 11.5 percent of retail sales in February.
Auto dealerships and gas stations were not the only businesses to enjoy higher receipts.
Clothing sales recorded their largest increase since November 2010. Mild weather has boosted traffic to shopping malls even though retailers have had to offer huge discounts to clear shelves of winter clothing.
Sales of building materials and garden equipment also registered sturdy gains, which economists said may have also partly reflected the weather.
Consumers also spent at restaurants and bars, on hobbies and on electronics and appliances. Furniture sales, however, fell.
“There is more underlying strength in the economy than the expected 2 percent first-quarter growth number would seem to indicate,” said Gus Faucher, a senior economist at PNC Financial Services Group in Pittsburgh.
So-called core retail sales, which exclude autos, gasoline and building materials, were up 0.5 percent after advancing 1.0 percent in January. Core sales correspond most closely with the consumer spending component of the government’s gross domestic product report.