Video: Retail revival

msnbc.com news services
updated 4/13/2004 1:34:17 PM ET 2004-04-13T17:34:17

Cash-flush consumers kept shopping counters humming last month, propelling sales at the America’s retailers to the highest level in a year.

The Commerce Department reported Tuesday that retail sales rose by a strong 1.8 percent in March from the previous month — three times bigger than the 0.6 percent increase that some economists were forecasting.

Shoppers treated themselves to a wide range of goods in March, splurging on cars, clothes, furniture and building and garden supplies.

The latest snapshot of consumers’ spending appetite is good news for the economic recovery’s vigor. Consumer spending accounts for roughly two-thirds of all economic activity in the United States. Thus, consumer behavior plays an important role in shaping the recovery.

Economists said an improved job climate, tax refunds and super-low borrowing costs probably made shoppers feel more inclined to indulge in March.

“Consumers showed a voracious appetite for spending,” said Ken Mayland, president of ClearView Economics.

Businesses boost stockpiles
In a second report from the Commerce Department, businesses boosted their inventories by 0.7 percent in February — the biggest increase since August 2000— a sign that companies are feeling better about the recovery’s staying power. Businesses’ sales, meanwhile, rose by a solid 0.5 percent in February from the previous month.

Because inventory building adds to economic growth, the inventories report provides another piece of encouraging evidence that the economy is gaining ground.

The 1.8 percent increase in retail sales, the biggest advance since March last year, followed a brisk 1 percent rise in February, which turned out to be much stronger than the 0.6 percent increase first estimated a month ago.

Analysts believe that the economy will grow at a healthy rate of around 4.5 percent in the first six months of this year, supported by both consumer and business spending.

The Federal Reserve since June of last year has held a key short-term interest rate at a 45-year low of 1 percent. Extra-low borrowing costs have motivated some consumers and businesses to step up spending and investment, forces that are helping the economy grow.

Major Market Indices

Fed Chairman Alan Greenspan and other Fed policy-makers have reminded Main Street and Wall Street numerous times that rates can’t stay at such super-low levels indefinitely.

That has prompted some economists to predict that the Fed will start pushing up rates later this year. Others, however, don’t see a rate increase until 2005. There seems to be agreement, though, that the Fed will leave rates alone at its next meeting in May.

Some Fed policy-makers have suggested that there needs to be a recovery in the job market before the Fed start ordering rates to go up.

After months of lackluster job gains, the economy in March added 308,000 jobs — the most in four years. President Bush has trumpeted that as evidence his economic policies are working. But presumptive Democratic presidential nominee John Kerry says that’s not the case and has pointed to the net 1.84 million jobs the country has lost since Bush took office in January 2001.

Continued improvements in the job market, however, would bode well for consumer spending in the months ahead and probably would erase fears voiced by analysts earlier this year of the possibility of an economic slowdown in the second half of this year, economists say.

Strong Easter week

A separate report Tuesday showed that healthy Easter-related business boosted U.S. chain stores sales in the latest week, suggesting spending strength should remain steady during the month.

Sales rose 0.8 percent in the week ended April 10 compared with a 0.3 percent rise in the previous week, the International Council of Shopping Centers and UBS said in a joint report.

Compared with the same week a year ago, sales increased 6.9 percent, down slightly from the 7.5 percent growth pace of the preceding week.

Though the 6.9 percent year-on-year figure was somewhat sizable, the data were adjusted to account for the fact that the Easter holiday fell earlier this year than last -- April 11 compared with April 20 in 2003.

"Despite the calendar shift, it still appears that the consumer trends remain steady," said Michael Niemira, ICSC's chief economist and director of research. "To this end, we expect that April sales will moderate to about 5.0 percent to 5.5 percent."

The ICSC-UBS Weekly Chain Store Sales Snapshot is compiled from a group of major discount, department and chain stores across the country that report their weekly results.

(The Associated Press and Reuters contributed to this report.)

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