US January retail sales boost provides foundation for recovery
US retail sales picked up last month after a sluggish December, providing a firm foundation for the economy's recovery.
Sales rose 0.4pc in January after being flat the prior month, the Commerce Department said yesterday.
The January reading was weaker than economists had expected because auto dealers took in less cash. Excluding autos, sales rebounded a solid 0.7pc, the biggest gain in 10 months.
"The consumer is spending and there is certainly no sign of a recessionary downturn, but spending patterns reflect a deleveraging consumer weighted by weak growth and a higher cost of living," said Steve Blitz, economist at ITG Investment Research in New York.
Investors on Wall Street took a dim view of the report and the Standard & Poor's 500 index retreated from a near seven-month high. Prices for US Treasury debt rose and the dollar rose against a basket of currencies.
While the economy is expected to take a step back in the first half of the year, a firming labour market and solid manufacturing are providing a cushion.
While automakers reported the strongest sales in nearly two-and-a-half years in January, activity was supported by discounts and strong fleet sales. The government, which measures retail sales in dollars, counts fleet sales as a business capital expenditure, not retail activity.
Other data yesterday showed confidence among small US business owners rose for a fifth straight month in January.
But economists are worried that a recent increase in gasoline prices, which contributed to the gain in retail sales last month, could hurt spending.
"The rise in gasoline prices will likely take a toll on spending in coming months unless income growth improves," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Still, the retail sales report adds to a recent run of fairly upbeat economic data, which some analysts say reduce the need for the Federal Reserve to ease monetary policy further through a third round of bond purchases.
A survey of economists published yesterday showed a 35pc chance of more Fed bond purchases. It also found that economists see a 50-50 chance that the US central bank could raise interest rates before the end of 2014. But with unemployment still at an uncomfortably high 8.3pc, the Fed is still debating its next step. (Reuters)