February 14, 2008

US retail sales rebound; consumers splurge on cars, clothes

WASHINGTON (AFP) - US retail sales rose 0.3 percent in January, a government report showed Wednesday, as shopping activity rebounded unexpectedly despite mounting concerns about wider economic growth.

The monthly snapshot was better than expected as most economists had expected retail sales to decline 0.3 percent after sales posted a 0.4 percent drop in December.

Retail sales are tracked closely by economists to assess consumer spending which is a vital economic driver.

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

The surprise rebound in sales was largely driven by improved vehicle and clothing store sales and an increase in turnover at gasoline stations.

Excluding automobile sales, which can fluctuate strongly, sales were up 0.3 percent, according to the Commerce Department survey.

The improvement in overall sales and sales excluding autos marked the strongest gains since November.

The readings are likely to support the assumptions of some economists who believe the economy will avoid a recession. Other economists believe the world's biggest economy is on the verge of or has already fallen into a recession.

The Federal Reserve has cut interest rates aggressively in recent months amid a slowdown in growth in a bid to boost economic momentum which relies heavily on consumer spending.

"The Fed will remain supportive. Consumption may not be meeting the worst fears but demand is sluggish," Stephen Gallagher, an economist at Societe Generale, said of the latest retail sales numbers.

The central bank's federal funds short-term interest rate is pegged at 3.00 percent. Gallagher expects the Fed to cut rates by 50 basis points at the Fed's next scheduled meeting on March 18.

President George W. Bush is due to approve a giant economic stimulus package worth over 160 billion dollars later Wednesday, hoping it will help fire up the ailing American economy which has been battered by a widespread housing and credit crunch.

Driving the overall improvement in retail sales, auto dealers saw sales rebound 0.6 percent last month compared with a sharp 1.1 percent decline in December. The gain was the strongest since September of last year.

Gasoline station sales increased 2.0 percent after remaining unchanged in the prior month.

And a rebound in clothing store turnover also helped pump up overall sales activity.

Clothing sales rebounded 1.4 percent in January following a 2.3 percent drop in December.

The rebound in clothing sales suggests consumers responded to retailers' tantalizing incentives last month, as many retailers slashed prices in a bid to pare their inventories.

Economists said sales of jackets, suits, jeans, dresses and other fashion accoutrements may also have gotten a lift last month from Christmas gift cards.

The lingering housing slump appeared to temper spending, however, as sales of furniture and other home furnishings declined 0.5 percent in January against a sharper 0.9 percent drop in December.

Electronics and appliance stores reported a 1.0 percent decline in sales compared with a heavy 3.2 percent slump in the last month of 2007 while building material and garden accessory sales fell 1.7 percent compared with 2.5 percent in December.

In the 12 months to January, overall sales rose 3.9 percent in January and were up 4.9 percent excluding autos.

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