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.