U.S. retail sales posted their largest gain in four months in February, but a slump in consumer confidence in early March on rising gasoline prices pointed to slower consumer spending ahead.
Sales rose 1.0 percent for the eighth straight month of gains as shoppers stepped up purchases of autos, clothes and other goods even as they spent more for gasoline, the Commerce Department said Friday.
But rising gasoline prices sent consumer confidence tumbling to a five-month low in early March, a separate report showed.
"The last few weeks have been difficult for consumers. We are likely going to see weaker spending in March," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "High gas prices will impede the recovery, but won't derail it. It's a speed bump."
While consumer spending — which accounts for 70 percent of U.S. economic activity — was expected to moderate after growing at a 4.1 percent annual pace in the fourth quarter, economists said rising gasoline prices could cause a much bigger pull-back than had been anticipated.
Though the government revised the January retail sales gain up to 0.7 percent from 0.3 percent previously, most economists have trimmed forecasts for consumer spending and economic growth for the first quarter.
JPMorgan economist Michael Feroli, who said first-quarter consumer spending was tracking a 2 percent pace, cut his first-quarter growth estimate to a 2.5 percent rate from 3.5 percent, taking into account a surge in imports reported earlier this week and softer spending.
The economy grew at a 2.8 percent annual rate in the last three months of 2010.
Unrest in the Middle East and North Africa has pushed crude oil prices above $100 a barrel, lifting gasoline prices 3.7 percent in February and straining consumer pocketbooks.
"In an economy that relies on oil, gas prices affect everybody," President Barack Obama said at a White House news conference. "For Americans already facing tough times it's an added burden," he said, adding that the administration stood ready to release emergency oil stockpiles if needed.
The Federal Reserve is likely to nod to the rise in energy costs in a statement after a meeting on Tuesday, but analysts think the U.S. central bank will not see a grave enough threat to either growth or inflation to alter its policy course.
Sentiment sags
With prices at the pump continuing to rise, the Thomson Reuters/University of Michigan's index of consumer sentiment slipped to 68.2 this month from 77.5 in February. The Energy Information Administration said this week households would pay an average of $700 more for gasoline this year than in 2010.
The data had little impact on U.S. financial markets, where attention was focused on a massive earthquake in Japan. Stocks on Wall Street rose in volatile trade, while prices for U.S. government debt fell. The dollar traded down against the yen.
Higher prices pushed receipts at gasoline stations up by 1.4 percent, but sales rose 0.9 percent even excluding gasoline, underscoring consumers' resilience.
Autos sales rose 2.3 percent, clothing sales gained 0.8 percent and receipts at sporting goods, hobby, book and music stores increased 1.3 percent. Sales of building materials and garden equipment were up 0.6 percent.
So-called core retail sales — which exclude autos, gasoline and building materials — rose 0.6 percent. Core sales correspond most closely with the consumer spending component of the government's measure of economic growth.
"Should gas prices remain elevated for an extended period as anticipated by many analysts, consumers are likely to have to trim other spending," said Jim Baird, a partner at Plante Moran Financial Advisors in Kalamazoo, Michigan.
"Nonetheless, that impact may be mitigated to a degree by frugality fatigue and the general sense that the economy is improving."