U.S. Commerce on March: Retail Sales Rise Third Month in a R0w

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Washington—The U.S. Commerce Department today gave another “green light” today on the road to economic recovery. Retail sales rose for the third straight month in March, thanks to an early spring, Easter and incentives that brought consumers out to buy cars and clothing.

In fact, the increase was better than economists had expected. Even better, it’s the latest sign that consumer spending is rising fast enough to support a modest economic recovery. Sales rose 1.6% last month, the Commerce Department revealed today, up from February’s revised 0.5% gain. Economists surveyed by Thomson Reuters had expected a gain of 1.2 percent.

Moreover, the increases occurred across merchandise classifications and channels. Those reporting gains includes, clothing retailers and general merchandise stores, car dealers, home furnishing stores, building suppliers and sporting goods stores. Auto sales rose 6.7%, the department said, the most since last October. The positive news from Washington follows on the heels of last week’s reports where many major chain, department store and specialty retailers posted their best year-over-year performances since 1999. Overall, sales in stores open at least a year rose 9 percent last month, based on an index of 31 retailers compiled by the International Council of Shopping Centers.

“Households are spending more and saving less in anticipation of an improving economy,” says Nigel Gault, chief U.S. economist at IHS Global Insight, noting that disposable income actually dropped first quarter. “News of an upturn in employment in March should boost confidence in the economic recovery and expectations for income growth in the year ahead.”

Fears about a return of inflation were abated, too. In a separate report, the U.S. Labor Department said consumer prices edged up just 0.1% in March. And excluding food and energy, prices were unchanged in March. Over the past 12 months, those prices have risen at the slowest pace in six years.

Commerce also reported Wednesday that businesses increased their inventory levels for the second straight month in February—another positive sign that they expect further sales gains since some many retailers and wholesalers had slashed their inventories during the recession. In the retail sales report, Commerce said excluding autos, sales rose 0.6%. That was also ahead of the 0.5% analysts had predicted.

Consumers: Cautious but Spending

The National Retail Federation’s measure of retail sales, which excludes autos, gas and restaurants, showed a 0.9% monthly gain and rose an unadjusted 5.7% from last March. “It’s evident consumers were feeling much better about the economy and their finances last month,” said Rosalind Wells, Chief Economist for NRF. “Pent up demand combined with an early Easter and warm spring weather significantly boosted consumers’ moods and retail sales.”

Adds Wells: “Because the early Easter pulled sales into March from April last year, the combined March-April period will be a much better barometer of performance. Going forward, we expect continued year-over-year gains after sharp the declines in 2009. Consumer confidence has risen along with the financial markets, but elevated unemployment and a depressed housing market will continue to weigh heavily on the consumer mindset. Commerce figures also showed that household budgets remain under pressure as hourly earnings fell again.”

Economists closely watch retail sales for signs that consumer spending–which powers about 70 percent of the economy–is recovering. Consumers cut back sharply and boosted their savings during the Great Recession. But some appear to be spending more freely. Sales declined in 2008 and 2009, the first back-to-back decreases since the 1930s.

Zach Pandl, an economist at Nomura Securities, estimates consumer spending may have risen by as much as 4% in the January-to-March quarter — more than double the 1.6% rise in fourth quarter 2009. That would amount to the the biggest quarterly gain in three years.

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