News & Observer | newsobserver.com | Strength of retail sales a surprise for analysts

Published: May 14, 2008 12:30 AM
Modified: May 14, 2008 02:43 AM

Strength of retail sales a surprise for analysts

Auto buying slumps, but economy bearing up elsewhere

 

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WASHINGTON - Consumers cut back on car-buying in April but boosted spending in a number of other areas, giving evidence of the economy's staying power in spite of soaring gasoline prices.

The Commerce Department said that retail sales overall dipped by 0.2 percent last month but that much of the weakness stemmed from a 2.8 percent plunge in car sales, the biggest setback in this category in 10 months.

Excluding autos, retail sales rose by a surprisingly strong 0.5 percent. This better-than-expected showing outside of autos was seen as evidence that the consumer is hanging tough even in the face of soaring gasoline prices and a slumping economy.

Analysts said the unexpected strength showed consumer spending in many areas was holding up in April, the start of the second quarter, even before the government began mailing out 130 million economic stimulus payments, checks that are expected to give the economy a boost in coming months.

David Wyss, chief economist at Standard & Poor's in New York, said that he was still expecting overall economic growth, as measured by the gross domestic product, to turn negative this quarter but that this forecast might prove too pessimistic given the strength seen in April retail sales. "It looks like it is hard to hold the American consumer back," he said.

While many analysts think the economy has slipped into a recession, economic growth has not turned negative yet. Economists now think the anemic 0.6 percent GDP growth rate turned in for the first quarter may be revised upward to about 1 percent.

There were indications in the retail sales report that consumers, trying to make their dollars go further, were choosing to do more of their shopping at discount stores. General merchandise stores, a category that includes big chains such as Wal-Mart, saw sales rise by a solid 0.5 percent while department stores saw sales dip by 0.1 percent.

Sales at specialty clothing stores posted a 0.7 percent increase in April while sales at electronics and appliance stores were up 1.4 percent and sales at sporting goods and hobby stores rose 0.4 percent. However, sales at furniture stores remained under pressure, edging up just 0.1 percent, reflecting the prolonged slump in housing sales.

In other economic news, the Commerce Department said business inventories posted a 0.1 percent gain in March, the smallest advance in a year and another sign of the weakening economy.

The small inventory rise was below the 0.4 percent increase that many economists were expecting and was an indication that businesses are holding back on adding to their stockpiles in the face of slowing demand.

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