Retail Sales Gain Shows Resilient American Consumer

Sales at U.S. retailers unexpectedly advanced in April, helping ease concern of a sustained pullback in consumer spending that would stifle the economy.

The 0.1 percent gain followed a 0.5 percent decrease in March, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg survey called for a 0.3 percent drop. Retail purchases climbed by the most in four months minus receipts from service stations, where cheaper gasoline prices depressed the dollar value of sales.

Lower fuel costs combined with rising stock and home values are boosting buying power, which will help underpin purchases as the labor market improves. Resilient sales indicate the effects on spending from a higher payroll tax will prove temporary, corroborating forecasts of a pickup in the economy after a second-quarter soft spot.

“Consumers are staying active and providing support to the economy,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York, who correctly forecast the increase in sales. “We will see a slowdown this quarter, but it won’t be dramatic. There will be some damping of spending due to the payroll tax, but it will be mild.”

Another report showed companies held inventories in check in March as sales cooled. Stockpiles were little changed for a second month, Commerce Department figures showed.

Most stocks fell after benchmark indexes climbed to records last week. The Standard & Poor’s 500 Index rose by less than 1 point to 1,633.77 at the close in New York. The Dow Jones Industrial Average dropped 0.2 percent to 15,091.68.

China’s Economy

Elsewhere, China’s fixed-asset investment unexpectedly decelerated last month, while industrial production trailed estimates, adding to concerns that the economy will fail to show much of a recovery this quarter.

In Europe, euro-zone finance ministers are gathering in Brussels today to discuss the economic situation in the region after the European Commission revised its forecast for 2013 down to a 0.4 percent contraction. They are reviewing bailout programs in Cyprus and Spain, and may sign off on aid payments to Greece.

The U.S. retail sales report showed that figures used to calculate growth, which exclude categories such as gasoline and automobiles, climbed 0.5 percent for the second time in three months. The report encouraged economists at JPMorgan Chase & Co. to raise their tracking estimate for second-quarter growth to 2 percent from 1.5 percent.

Household spending, which accounts for about 70 percent of the economy, will grow at a 1.8 percent annualized rate this quarter after expanding at a 3.2 percent pace in the first three months of the year, the most since the end of 2010, according to the median forecast of economists surveyed by Bloomberg before today’s report.

Payroll Tax

Economists had marked down forecasts on expectations an increase in taxes would start to bite. At the beginning of 2013, the payroll tax reverted to its 2010 rate of 6.2 percent after holding at 4.2 percent for two years.

Nine of 13 major retail sales categories showed gains last month, led by a 1.2 percent advance at clothing stores, the biggest in more than a year, according to today’s report. Receipts at general merchandise outlets, which include department stores, climbed 1 percent, the most since March 2012.

Retailers that sell discounted name-brand clothing and home goods were among those showing the best results, according to industry reports. Same-store sales jumped 8 percent last month from the same time in 2012 at TJX Cos., the owner of T.J. Maxx and Marshalls stores, while Ross Stores Inc. had a 7 percent gain. Results at both chains exceeded analysts’ forecasts.

‘Strong Start’

May is “off to a strong start,” Sherry Lang, senior vice-president of global communications at Framingham, Massachusetts-based TJX Cos., said on a May 9 sales call. “It was nice to see strength in apparel as well as home categories across the board.”

Sales at automobile dealers also improved, which is at odds with the industry data that the government uses to calculate gross domestic product.

Cars and light trucks sold at a 14.9 million annual pace in April, down from a 15.2 million rate the prior month, according to data from Ward’s Automotive Group. The average for the first quarter was 15.3 million, the strongest since the same period in 2008 and a sign the longer-term outlook remains positive.

The government’s auto figures don’t always track industry statistics month to month because the Commerce Department surveys auto dealers, while industry statistics are gathered from the nation’s automobile manufacturers. The dealer data may also reflect changes in price, while the industry data represent individual units.

Ford Motor Co., General Motors Co. and Chrysler Group LLC said sales increased in April from the same month last year.

Borrowing Costs

“Low borrowing costs and rising consumer wealth should continue to support spending growth going forward,” Jenny Lin, Dearborn, Michigan-based Ford’s senior U.S. economist, said on a May 1 conference call.

A drop in receipts at service stations restrained total sales. The decrease probably reflected lower gasoline prices because the data aren’t adjusted for inflation. Purchases excluding gasoline jumped 0.7 percent in April after a 0.1 percent drop.

A gallon of regular gasoline at the pump averaged $3.55 in April, lower than March’s $3.69. The price peaked at a four-month high of $3.79 on February 26, according to AAA, the biggest U.S. motoring group.

Advances in equity prices, which mainly benefit wealthier Americans, are helping to underpin consumer spending. U.S. stocks are in the fifth year of a bull market amid better-than-forecast corporate earnings and record stimulus by the Federal Reserve.

Home Prices

Retail sales may also keep getting help from the housing market. Residential real-estate prices rose in the year ended in February by the most since May 2006, according to the S&P/Case-Shiller index of house values in 20 cities.

Better job growth would help spur purchases and put more of the 11.7 million unemployed Americans back to work. Payrolls expanded by 165,000 workers in April after a 138,000 gain in March, according to the Labor Department. They rose by 236,500 a month on average from November through February.

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