A surprisingly strong report Wednesday on January retail sales growth raised hope that consumers will muddle through the U.S. housing downturn and continue spending at a pace that will keep the economy afloat.
Following a disappointing round of January sales reports from retailers, the Commerce Department said Wednesday that its gauge of retail sales growth showed an increase of 0.3% for the month, largely due to a large increase in gasoline sales amid high fuel prices. Economists on Wall Street were expecting a 0.3% decline after the government reported a dismal 0.4% decline in December -- the height of the holiday shopping season.
Consumer spending powers roughly two-thirds of the U.S. economy, as well as other major world economies that are largely dependant on exports to the U.S., like China and India. Meanwhile, economists view consumer spending as particularly vulnerable in the U.S. housing downturn, since rising home foreclosures are a sign that many Americans can't make ends meet and shrinking home values bodes ill for a major source of wealth for the masses.
A slowdown in the job market now would be particularly tough on consumers as they struggle to pay down debt, and the government recently reported that nonfarm payrolls declined by 17,000 jobs in January -- the first drop on record since August 2003.
While President Bush has insisted that the economy remains strong, he partnered with opposition leaders in Congress to pass a sizable stimulus package that's designed to juice consumer spending by sending rebate checks to 130 million Americans starting in May.
Despite the concerns, Wednesday's retail data showed that U.S. sales of autos and auto parts increased by 0.6% in January. December auto sales had fallen 1.1%. Sales of all other retailers excluding auto and parts dealers increased in January by 0.3%, while economists had expected a 0.2% increase.
January gasoline station sales increased by a whopping 2%. Gas sales were unchanged in December. Stripping away sales at gas stations, sales at all other retailers was up only 0.1%.
Sales in areas tied to the housing sector struggled. Building material and garden supplies dealers dropped 1.7% and furniture store sales fell 0.5%. Sales slid by 1.0% at electronics and appliance stores.
Stocks rallied on the retail news Wednesday morning, a day after San Francisco
Bank President Janet Yellen said monetary policymakers remain focused on risks to economic growth, hinting that more rate cuts are in store from the central bank. She said it was "premature" for the Fed to start talking about how the central bank might set about reversing its current easy-money stance.
We've got a significant threat here," Yellen said. "We need to remain very focused on the downside risks to the economy."