U.S. retail sales show surprise strength in April

May 15, 2002
U.S. consumers hit stores and new car showrooms in droves in April, giving retail sales their biggest boost since last fall, the government said in a
U.S. consumers hit stores and new car showrooms in droves in April, giving retail sales their biggest boost since last fall, the government said in a report showing the economy with a surprising head of steam. Retail sales rose an unexpectedly strong 1.2 percent to a seasonally adjusted $300.27 billion in April, the Commerce Department said. Auto sales climbed 1.9 percent, but even without that gain retail sales posted a 1.0 percent rise. "The U.S. consumer continually surprises to the upside and this is yet another surprise," said Larry Rhame, U.S. economist with Brown Brothers Harriman & Co. in New York. The April sales increase, which heightened expectations the Federal Reserve would raise interest rates in August, was the biggest since a surge last October when shoppers returned to malls as the shock of the Sept. 11 attacks wore off. Wall Street economists had expected sales to rise just 0.7 percent overall and 0.4 percent excluding autos. The unexpected strength helped fuel a stock market rally, which combined with a shift in thinking on when the Fed would raise rates to drive prices for U.S. Treasury securities down sharply. The Dow Jones industrial average closed up nearly 190 points at 10,299 and the tech-heavy Nasdaq composite rose almost 67 points to 1719. April's report showed gains across a broad swath of the retail world in addition to auto showrooms, which had their best showing since October. Sales at building material and supplies dealers rose 2.7 percent, their fourth straight monthly gain, and sales at gasoline stations were up 2.0 percent. Economists had expected a continued surge in gasoline prices, which have been rising on the back of tensions in the Middle East. The only retail categories to see declines were furniture outlets, food and beverage stores and sporting goods shops. For the most part, economists said the data showed U.S. consumers, who account for two-thirds of economic activity, doing their part to get the economy on a solid footing. Still, some said seasonal quirks may have boosted the numbers and others noted that the data is historically volatile. "I wouldn't draw sweeping conclusions from April's strong results," Bill Cheney, chief economist at John Hancock Financial Services in Boston, said in a note analyzing the report. Nevertheless, he said, "The underlying trend is reassuring." Some analysts cautioned, however, that a number of the factors that had given strength to consumer spending in the early part of the year, such as tax rebates, were set to fade. Fed officials have said that since consumer spending held up well during the recession that began in March of last year, it would likely play only a limited role in helping the economy recover. Instead, they say a pickup in business spending is key to ensuring a sustainable expansion. "There's still some remaining uncertainty about the strength and durability of the recovery," San Francisco Federal Reserve Bank President Robert Parry said on Tuesday. While sales in April were strong, two other reports released on Tuesday showed sales at U.S. chain stores softened in early May as Mother's Day gift-buying failed to attract shoppers and stormy weather crimped customer traffic. U.S. chain store sales slipped 0.5 percent during the week ended May 11, the Bank of Tokyo-Mitsubishi and UBS Warburg reported. Separately, Instinet's Redbook Average of sales fell 0.5 percent in the May 11 week from the same month-ago period. Although retail sales have fluctuated considerably in the past few weeks, analysts said the overall trend indicates that consumer resilience is likely to persist in May. "You look at these numbers and it's surprising how well they're holding up," said Frank Badillo, a senior retail economist with Retail Forward in Columbus, Ohio. A further sign of the retail sector's health came from a number of major U.S. retailers -- including industry giant Wal-Mart -- that reported higher quarterly earnings. Wal-Mart , the world's largest retailer, said its quarterly profits rose nearly 20 percent on record sales of low-priced food and other items. J.C. Penney Co. Inc. , off-price retailer TJX Cos. Inc. and luxury jeweler Tiffany and Co. also reported higher profits. "The consumer is not capitulating," said Todd Slater, retail analyst at Lazard LLC. "The consumer is hanging in there."