updated 3/15/2005 10:27:57 AM ET 2005-03-15T15:27:57

Retail sales, bolstered by a rebound in demand for autos, rose a healthy 0.5 percent in February, the Commerce Department reported Tuesday.

Major Market Indices

In addition to a solid sales performance last month, the government revised sharply higher its estimate for sales activity in January, showing a gain of 0.3 percent rather than the original estimate that sales had fallen by 0.3 percent at the beginning of the year.

Taken together, the two months showed that the consumer buying spree that began with a 1.3 percent sales surge in December was continuing in the new year despite stormy winter weather and rising energy prices.

For February, auto sales rose by 0.7 percent, recouping part of the 2.1 percent plunge in sales that occurred in January. That decline reflected a reduction in the attractive incentives that auto dealers had offered in December in a successful effort to reduce their inventories of unsold cars.

In a separate report, the Commerce Department said that inventories held by businesses on their shelves and backlots increased 0.9 percent in January, a significant acceleration from a 0.2 percent inventory increase in December. Analysts had been expecting a strong advance reflecting business efforts to restock shelves in anticipation of further strong gains in sales.

The January inventory increase was led by a 1.3 percent rise in stockpiles held by manufacturers followed by a 1.1 percent increase at the wholesale level and a 0.4 percent rise in inventories held by retailers.

Excluding the rise in auto demand, retail sales were up 0.4 percent in February following a huge 1 percent jump in January. Part of the January increase had been attributed to shoppers using the gift cards they had received during the holidays. Estimates are that the redemption of gift cards had pumped up retail sales by nearly $18 billion during December and January.

Since the recession ended in November 2001, consumers have been the standout performers for the economy, a surge in spending that was bolstered by easy credit fostered by the Federal Reserve’s low interest rates and President Bush’s sizable tax cuts.

This year, analysts believe consumer spending will remain solid, although they are predicting it will come it at slightly lower levels given the fact that the impact of the tax cuts is wearing off and the Fed is now boosting interest rates to make sure that economic demand does not become so strong that it triggers higher inflation.

Fed officials meet next Tuesday and analysts are widely expecting another quarter-point increase in interest rates at that time.

For February, sales at clothing and accessory stores rose by 1.1 percent, down only slightly from the 1.7 percent jump in January.

Sales were also strong at furniture and home furnishings stores, which posted a 0.7 percent increase, and at electronics and appliance stores, which saw demand rise by 1.6 percent. Gasoline stations reported a 0.9 percent increase in sales, but that reflected increased pump prices as well as rising demand.

Sales were also up at restaurants and bars, grocery stores and sporting goods, music and hobby stores.

Hardware stores were the one major category reporting a decline in sales last month, a drop of 1.3 percent following a 0.6 percent increase in January.

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