updated 5/13/2008 12:37:17 PM ET 2008-05-13T16:37:17

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.

Major Market Indices

The Commerce Department said that retail sales overall dipped by 0.2 percent last month but much of that 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.

“The consumer has not given up the ghost and continues to spend,” said Joel Naroff, chief economist at Naroff Economic Advisors.

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 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 believe the economy has slipped into a recession, economic growth has not turned negative yet. Economists now believe the anemic 0.6 percent GDP growth rate turned in for the first quarter may be revised upward to around 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.

Discounters Wal-Mart and TJX both reported solid first-quarter profits on Tuesday, another indication that Americans are hunting for bargains in the face of layoffs, a slumping housing and gasoline prices at record highs, hitting $3.73 a gallon this week.

The Bush administration is hoping that a $168 billion economic stimulus package, which includes about $100 billion in direct payments to households, will give the economy a jump-start and either avert a recession altogether or at least make any downturn a mild one. The government started making the stimulus payments at the end of April.

The Federal Reserve launched an aggressive campaign last September to cut interest rates in an effort to deal with the weakening economy and a severe credit crisis. The central bank cut the federal funds rate for the seventh time last month but indicated it might now pause, with some Fed officials expressing worries that higher inflation could be triggered if interest rates were driven even lower.

Federal Reserve Chairman Ben Bernanke said in a speech Tuesday that the turbulent financial market had eased somewhat but that the situation remained “far from normal.” He said the Fed’s actions, which included an unprecedented move to allow investment banks to borrow directly from the Fed, “seems to have bolstered confidence.”

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 pressuring, edging up just 0.1 percent, reflecting the prolonged slump in housing sales.

In other economic news, the Commerce Department said that business inventories edged up a tiny 0.1 percent 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.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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