U.S. retail sales expanded at their fastest clip in five months in February, the latest sign of momentum for an economy facing headwinds from higher taxes and pricier gasoline.
The solid sales last month comes on the heels of strong gains in employment and manufacturing. But the improvement in the economic picture is likely insufficient to shift the Federal Reserve from its very accommodative monetary policy stance.
“The economy in February is looking solid. None of this, however, is likely to cause the Fed to change tack in the near term,” said John Ryding, chief economist at RDQ Economics in New York.
Retail sales increased 1.1 per cent, the largest rise since September, after a revised 0.2 per cent gain in January. That was well above economists’ forecasts for a 0.5 per cent advance.
So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, rose 0.4 per cent after increasing 0.3 per cent in January.
The upbeat report helped to lift to the dollar to a seven-month high against a basket of currencies. Prices for U.S. government debt fell and stocks on Wall Street slipped after a recent rally.
The healthy gains in retail sales came despite the end of a 2 per cent payroll tax cut and an increase in tax rates for wealthy Americans on Jan. 1.
Spending is being supported by the stock market rally, rising home prices and sustained job gains which are starting to push wages higher.
The gains in core sales in the first two months of the year offered hope that consumer spending, which accounts for about 70 per cent of the U.S. economy, would probably not slow much this quarter after growing at a 2.1 per cent annual rate in the fourth quarter.
A second report from the Commerce Department showed business inventories rose by the most in more than 1-1/2 years in January.
Retail inventories, excluding autos – which go into the calculation of gross domestic product – recorded their largest increase since August 1995.
That and the rise in core retail sales should help boost economic growth after output barely expanded in the last three months of 2012.
Economists raised their first-quarter growth estimates by as much as eight-tenths of a percentage point after the reports.
Despite paying 35 cents more for gasoline at the pump, consumers also bought automobiles last month.
Receipts at auto dealerships rose 1.1 per cent after falling 0.3 per cent in January. Excluding autos, retail sales increased 1.0 per cent, also the largest increase in five months. That followed a 0.4 per cent advance in January.
Last month, the high gas prices helped to lift sales at gasoline stations by 5.0 per cent, the largest increase since August. They had risen 0.7 per cent in January. Excluding gasoline, sales rose 0.6 per cent.
Sales at building materials and garden equipment suppliers increased 1.1 per cent, reflecting gains in home building as the housing market recovery gains momentum. Receipts at clothing stores rose 0.2 per cent.
Delays in tax refunds probably hurt sales at restaurants and bars, which fell 0.7 per cent, while receipts at sporting goods, hobby, book and music stores declined 0.9 per cent.
Sales of electronics and appliances slipped 0.2 per cent, while receipts at furniture stores dropped 1.6 per cent, the largest decline since April 2011.