More Americans Feel Economic Recovery

April 14, 2010
Retail sales surged 1.6%

A flurry of reports out on April 14 suggested that many Americans are feeling better about the economic rebound.

Retail spending rose sharply and more than expected. Consumer inflation remains all but invisible. Businesses are boosting their stockpiles in anticipation of higher shopper demand.

And Federal Reserve Chairman Ben Bernanke expressed confidence that the recovery will endure, though without enough strength to quickly reduce unemployment much.

The latest evidence of a gradually strengthening recovery was a third straight month of retail sales gains reported by the government. Better weather and auto incentives brought shoppers out in force in March. Sales surged 1.6%, the Commerce Department said, up from February's revised 0.5% gain. Economists surveyed by Thomson Reuters had expected a gain of 1.2%.

The increases were across the board. Car dealers, home furnishing stores, building suppliers, sporting goods stores, clothing retailers and general merchandise stores all reported gains. Auto sales surged 6.7%, the department said, the most since last October.

In a separate report, the 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.

Still, household budgets remained under pressure as hourly earnings fell again.

Commerce also reported on April 14 that businesses increased their stockpiles for the second straight month in February. That's a positive sign that they expect further sales gains.

Factories, retailers and wholesalers had slashed inventories during the recession as sales plummeted. Sustained gains in sales may persuade businesses to rebuild their stockpiles, triggering increased factory production and supporting the economic recovery.

In the retail sales report, Commerce said excluding autos, sales rose 0.6%. That was also ahead of the 0.5% expected by analysts.

Economists closely watch retail sales for signs that consumer spending, which powers about 70% 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. "Consumers are coming out of their shells despite a very weak labor market," said Zach Pandl, an economist at Nomura Securities. They have "emerged from the financial crisis with fewer scars than we had feared."

Pandl 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 last year's fourth quarter. That would be the biggest quarterly gain in three years.

The gain is largely a result of reduced saving. Disposable income actually dipped in the first quarter, according to Nigel Gault, chief U.S. economist at IHS Global Insight. The unemployment rate was 9.7% in March.

Consumers' willingness to spend more means they are likely "looking ahead to better times," Gault said. Companies added the most workers to their payrolls in three years in March, the government said earlier this month. Gault expects incomes to rise in future months as hiring improves.

Last week, chain retailers reported strong sales gains in March. Discounter Target Corp., department store Macy's Inc., clothier Gap Inc. and Victoria's Secret parent Limited Brands Inc. posted double-digit increases that beat Wall Street analysts' expectations. Overall, sales in stores open at least a year rose 9% last month, based on an index of 31 retailers compiled by the International Council of Shopping Centers.

Retailers benefited last month from several positive factors. Most Easter sales came in March. Last year's holiday occurred more than a week later.

Meanwhile, automakers said earlier this month that sales leapt 24% in March compared with a year earlier. Car companies sought to match heavy incentives provided by Toyota Motor Corp. Toyota's sales jumped 41% last month.

Toyota, seeking to counter damage from a series of safety recalls, offered unprecedented incentives. They included low-interest financing and free maintenance for returning customers.

General Motors Corp. said new-car sales increased 21%, while Ford said sales rose nearly 4%.

Copyright 2010 The Associated Press

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