Good News: Retail Sector Soars (Updated)

Consumer spending dipped for the second straight month, but slightly beat economists' forecast. Regardless, investors sent shares in the retail sector soaring.
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Shoppers are apparently no longer being enticed by deep discounts and promotions -- or maybe they're just hoarding their money. Regardless, consumer spending has dipped for the second straight month.

But investors, still in the mindset that any news that isn't disastrous is good news, sent the retail sector rallying in Monday morning trading.

The S&P Retail Index gained 5% to 335.95, led by a 6% increase at

Target

(TGT) - Get Report

to $41.74, a 12% jump at

Macy's

(M) - Get Report

to $13.14 and an 12% jump at

J.C. Penney

(JCP) - Get Report

.

Other notable gainers included:

Sears

(SHLD)

, which rose 9% to $61.71,

Nordstrom

(JWN) - Get Report

, which increased 10% to $21.87, and drugstore chain

Rite Aid

(RAD) - Get Report

, which soared 15% to $1.33.

After a burst of spending at the beginning of the year, with shoppers taking advantage of sale merchandise, consumer spending pulled back .1% in April, the Commerce Department reported on Monday. This is slightly less than the .2% expected by economists.

The news comes a few days before retailers are set to report May same-store sales. Most economists believe consumers in the April-to-June quarter will hold tighter to their wallets than they did in the first three months of this year, which won't bode well for May sales.

"Although consumer confidence is signaling signs of a recovery, it did not appear to us the May selling trends improved from the spring performance, suggesting we are not yet on a clear road to recovery," Thomas Filandro, analyst at Susquehanna Financial wrote in a note on Monday.

Consumer spending accounts for roughly 70% of overall economic activity.

The personal savings rate surged 5.7%, the highest since February 1995, while Americans' incomes jumped .5%, following two straight months of declines.

The growth in incomes -- the most since May 2008 -- surprised economists who forecast a .2% decline. The improvement in April was attributable to tax cuts and benefit payments flowing from President Barack Obama's stimulus package. Wages and salaries, however, remained flat.

Consumer spending may be moderating, but when it comes to foreseeing the end of the recession, it's anyone's guess.

Forecasters at the National Association for Business Economics predict the economy will contract at a 1.8% pace in the April-June quarter. Other analysts think the economic decline could be steeper, around a 3% pace. Optimists are calling for less than 1%.

As for Federal Reserve Chairman Ben Bernanke, he has said he is hopeful the recession will end later this year.

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