Retail sales up in March in latest sign of economic recovery

Retail sales rose for the third straight month in March as better weather and auto incentives brought out shoppers in force.

The rise was more than economists had expected. It's the latest sign that consumer spending is rising fast enough to support a modest economic recovery.

Sales rose 1.6 percent last month, the Commerce Department said Wednesday, up from February's revised 0.5 percent gain. Economists surveyed by Thomson Reuters expected a gain of 1.2 percent.

The increases were widespread. Car dealers, home furnishing stores, building suppliers, sporting goods stores, clothing retailers and general merchandise stores all reported gains. Auto sales rose 6.7 percent, the department said, the most since last October.

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In a separate report, the Labor Department said consumer prices edged up just 0.1 percent in March. And excluding food and energy, prices were unchanged in March. Over the past 12 months, those prices have risen at the slowest pace in six years.

Still, household budgets remained under pressure as hourly earnings fell again.

In the retail sales report, Commerce said excluding autos, sales rose 0.6 percent. That was also ahead of the 0.5 percent expected by analysts.

Economists closely watch retail sales for signs that consumer spending, which powers about 70 percent of the economy, is recovering. Consumers cut back sharply and boosted their savings during the Great Recession. But some appear to be spending more freely.

"Consumers are coming out of their shells despite a very weak labor market," said Zach Pandl, an economist at Nomura Securities. They have "emerged from the financial crisis with fewer scars than we had feared."

Pandl estimates consumer spending may have risen by as much as 4 percent in the January-to-March quarter - more than double the 1.6 percent rise in last year's fourth quarter. That would be the biggest quarterly gain in three years.

The gain is largely a result of reduced saving. Disposable income actually dipped in the first quarter, according to Nigel Gault, chief U.S. economist at IHS Global Insight. The unemployment rate was 9.7 percent in March.

Consumers' willingness to spend more means they are likely "looking ahead to better times," Gault said. Companies added the most workers to their payrolls in three years in March, the government said earlier this month. Gault expects incomes to rise in future months as hiring improves.

Last week, chain retailers reported strong sales gains in March. Discounter Target Corp., department store Macy's Inc., clothier Gap Inc. and Victoria's Secret parent Limited Brands Inc. posted double-digit increases that beat Wall Street analysts' expectations. Overall, sales in stores open at least a year rose 9 percent last month, based on an index of 31 retailers compiled by the International Council of Shopping Centers.

Retailers benefited last month from several positive factors. Most Easter sales came in March. Last year's holiday occurred more than a week later.

Meanwhile, automakers said earlier this month that sales leapt 24 percent in March compared with a year earlier. Car companies sought to match heavy incentives provided by Toyota Motor Corp. Toyota's sales jumped 41 percent last month.

Toyota, seeking to counter damage from a series of safety recalls, offered unprecedented incentives. They included low-interest financing and free maintenance for returning customers.

General Motors Corp. said new-car sales increased 21 percent, while Ford said sales rose nearly 40 percent.

(Copyright 2010 by The Associated Press. All Rights Reserved.)