Consumer spending rises as factory output surges

MallRetail sales rose in April for the seventh straight month, offering hope that consumer spending will keep supporting the economy in the months ahead.

The Commerce Department said Friday that retail sales rose 0.4 percent last month, better than the 0.2 percent increase economists had expected. The gain was less than the the 2.1 percent growth in March. But that surge was boosted by an early Easter holiday and auto incentives.

Excluding autos, retail sales climbed 0.4 percent in April, matching expectations.

Consumer spending is closely watched because it accounts for 70 percent of economic activity. Consumer spending rose in the first three months of this year at the fastest pace in three years and economists are hoping that better news on employment will bolster spending in coming months.

The trend in sales gains is an encouraging sign that the economic recovery will continue, but analysts cautioned the rebound will not be as strong as previous periods because of a number of adverse factors weighing on households.

“The decent gains in payroll employment in recent months have improved the outlook for spending,” said Paul Dales, an economist at Capital Economics. But he said he was still looking for a sub-par recovery because of the “continued weak fundamentals of heavy indebtedness, tight credit and high unemployment.”

A second report Friday from the Federal Reserve showed that industrial production rose 0.8 percent in April, better than the 0.6 percent gain economists had expected. The increase provided further evidence that manufacturing is playing a leading role in supporting the economic recovery.

The 0.4 percent rise in retail sales in March was led by a 6.9 percent surge in spending at hardware stores. Spending was also up at health and beauty shops and gasoline service stations. Most other categories either showed outright declines or smaller increases than in March.

Auto sales managed a small 0.5 percent advance, much lower than the 6.7 percent surge in the previous month. Shoppers had rushed in March to take advantage of attractive sales incentives that were first offered by Toyota Motor Corp. in an attempt to counter adverse publicity from its safety recalls.

Sales at department stores fell by 1.5 percent and the broader category of general merchandise stores, which covers big retailers such as Wal-Mart and Target, posted a 0.4 percent decline.

In addition to the impact from an earlier-than-usual Easter, retailers had to contend with cold and rainy weather in much of the country in April, which depressed sales of spring clothing. Demand at specialty clothing stores fell 1 percent in April after having jumped 2.6 percent in March.

Sales at appliance and electronics stores were down 0.4 percent in April following an even bigger 1.3 percent drop in March.

The 0.4 percent rise in sales excluding autos followed a 1.2 percent jump in activity outside of autos in March.
The overall economy, as measured by the gross domestic product, grew at annual rate of 3.2 percent with that gain led by the biggest advance in consumer spending in three years.

Economists worry spending could falter in the coming months without more growth in income but there have been encouraging signs that job growth is picking up. In April, payroll jobs grew by 290,000, the most in four years. Yet the unemployment rate rose to 9.9 percent as more people began or resumed job searches ? a sign that many are feeling more optimistic about the labor market.

Source: The Associated Press.