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Retail sales rise in February, but gasoline prices don't bode well

March 11, 2011|Reuters

U.S. retail sales posted their largest gain in four months in February, but a slump in consumer confidence in early March on rising gasoline prices pointed to slower consumer spending ahead.

Sales rose 1% for the eighth straight month of gains as shoppers stepped up purchases of autos, clothes and other goods even as they spent more for gasoline, the Commerce Department said Friday.

But rising gasoline prices sent consumer confidence tumbling to a five-month low in early March, a separate report showed.

"The last few weeks have been difficult for consumers. We are likely going to see weaker spending in March," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pa. "High gas prices will impede the recovery but won't derail it. It's a speed bump."

Although consumer spending — which accounts for 70% of U.S. economic activity — was expected to moderate after growing at a 4.1% annual pace in the fourth quarter, economists said rising gasoline prices could cause a much bigger pullback than had been anticipated.

Though the government revised the January retail sales gain up to 0.7% from 0.3% previously, most economists have trimmed forecasts for consumer spending and economic growth for the first quarter.

JPMorgan economist Michael Feroli, who said first-quarter consumer spending was tracking a 2% pace, cut his first-quarter growth estimate to a 2.5% rate from 3.5%, taking into account a surge in imports reported earlier this week and softer spending.

The economy grew at a 2.8% annual rate in the last three months of 2010.

Unrest in the Middle East and North Africa has pushed crude oil prices above $100 a barrel, lifting gasoline prices 3.7% in February and straining consumer pocketbooks.

With prices at the pump continuing to rise, the Thomson Reuters/University of Michigan index of consumer sentiment slipped to 68.2 this month from 77.5 in February.

The Energy Information Administration said this week that households would pay an average of $700 more for gasoline this year than in 2010.

Higher prices pushed receipts at gasoline stations up by 1.4%, but sales rose 0.9% even excluding gasoline, underscoring consumers' resilience.

Autos sales rose 2.3%; clothing sales gained 0.8%; and receipts at sporting goods, hobby, book and music stores increased 1.3%. Sales of building materials and garden equipment were up 0.6%.

So-called core retail sales — which exclude autos, gasoline and building materials — rose 0.6%. Core sales correspond most closely with the consumer spending component of the government's measure of economic growth.

"Should gas prices remain elevated for an extended period as anticipated by many analysts, consumers are likely to have to trim other spending," said Jim Baird, a partner at Plante Moran Financial Advisors in Kalamazoo, Mich.

"Nonetheless, that impact may be mitigated to a degree by frugality fatigue and the general sense that the economy is improving," he said.

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