Originally created 05/13/05

Retail sales have strongest gain in six months



WASHINGTON - Retail sales jumped 1.4 percent in April, the strongest showing in six months, as consumers streamed back into auto showrooms and shopping malls in what was viewed as a signal that this year's economic slowdown was short-lived.

The Commerce Department said Thursday that the April increase in sales showed widespread strength across a number of retail categories and followed a weak 0.4 percent advance in March.

The poor showing for retail sales in March along with a number of other indicators flashing weakness during that month had raised concerns that the economy, hit by a surge in energy prices, could be entering another period of weakness similar to what Federal Reserve Chairman Alan Greenspan had called a "soft patch" in 2004.

But the big jump in retail sales followed reports of a better-than-expected performance on trade and a big jump of 274,000 jobs in April.

"The soft patch isn't looking as soft as we thought it was," said David Wyss, chief economist at Standard & Poor's in New York.

He said the lower-than-expected trade deficit would likely boost overall economic growth to around 3.5 percent in the January-March quarter, up from the government's initial estimate that the economy was growing by just 3.1 percent during that period.

"We should be able to get 3.5 percent to 4 percent growth in the first half of this year, which would be a good solid performance," Wyss said.

Nariman Behravesh, chief economist at Global Insight, a consulting firm, said that because of problems adjusting for an early Easter, the weakness in March retail sales and the strength in April sales were probably both overstated.

But he said the April advance "leaves no doubt that the March soft patch is over."

Wall Street investors, however, were not as enthusiastic about the April retail sales report and its signals about future prospects. They chose to focus instead on a profit warning from Wal-Mart Stores Inc., which said that high gasoline prices have hurt spending by their customers and will affect the company's second-quarter results.

The Dow Jones industrial average fell 110.77 points to close at 10,189.48.

In a second report, the number of U.S. workers filing new claims for unemployment benefits rose by 4,000 to 340,000 last week, the highest level for jobless claims in a month. The four-week moving average for claims also rose by 2,000 to 324,000.

Even with the increases, the claims numbers remained at levels indicating the labor market was continuing to improve, analysts said.

The 1.4 percent rise in retail sales last month was the biggest gain since a 1.8 percent sales jump last September.

The strength was led by a 2.5 percent increase in auto sales, which followed a 0.8 percent rise in March. It was the best showing for auto sales since a 4.2 percent surge in December, a month when dealers offered attractive end-of-the-year incentives in an effort to clear out a backlog of unsold cars.

But even excluding autos, consumer demand was strong last month, rising by 1.1 percent, far above the tiny 0.2 percent March increase in retail sales excluding autos.

Analysts said with employment rising, consumers will be able to keep spending in the months ahead. Consumer spending is closely watched because it accounts for two-thirds of total economic activity.

For April, sales at clothing stores rose 2.8 percent after having fallen by 2.2 percent in March. It was the biggest increase since a 5.2 percent surge in October 2002.

Sales at department stores rose 1.3 percent following a 2 percent decline in March.

Also enjoying sales gains were hardware stores, up 1.2 percent, health care stores, up 0.7 percent, and gasoline service stations, up 1.9 percent, a gain that primarily reflected higher gasoline prices.

Appliance and electronic stores saw a 0.1 percent drop in sales and sales were down 0.3 percent at sporting goods, hobby, book and music stores.

Restaurants and bars saw a 0.9 percent increase in sales while grocery stores saw sales increase 0.6 percent.