U.S. Economy: January Retail Sales Unexpectedly Rise (Update5)

By Shobhana Chandra


Feb. 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly rose in January, easing concern that the world's largest economy has already slipped into a recession.

The 0.3 percent increase was led by spending on autos, clothes and gasoline, the Commerce Department said today in Washington. The figure followed a 0.4 percent decrease the previous month. Purchases excluding automobiles and gasoline were unchanged from December.

``Today's report will diminish recession anxieties, but it doesn't dispel them altogether,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who accurately forecast the sales gain. Federal Reserve Bank of St. Louis President William Poole said on Feb. 11 that ``the best bet'' is the U.S. will avoid a recession.

Demand from consumers, whose spending accounts for about 70 percent of the economy, will probably wane in coming months, forcing the Fed to lower interest rates further, economists said. Macy's Inc., Target Corp. and Limited Brands Inc. said last week that sales at stores open more than a year declined in January. Macy's cut 2,300 jobs.

Department-store sales dropped 1.1 percent, today's report showed. Stores selling building materials reported a decrease, as did sellers of electronics, appliances and sporting goods.

`R word'

``It's pretty clear growth has slowed,'' Robert Eisenbeis, a former research director at the Atlanta Fed, said in an interview with Bloomberg Radio. ``Whether it's worth all the concern about the `R word' or not, I'm not quite so sure.''

Treasury securities dropped after the report, pushing ten- year note yields to 3.72 percent at 4:14 p.m. in New York, from 3.66 percent late yesterday. The Standard & Poor's 500 Index added 1.4 percent to reach 1,367.21. The S&P Retailing Index, which includes Home Depot Inc. and Best Buy Co., advanced 0.3 percent.

A separate report showed declining sales at U.S. businesses in December led to the biggest increase in inventories of unsold goods in a year and a half.

The 0.6 percent gain in inventories, the highest since July 2006, followed a 0.4 percent rise in November, the Commerce Department said today in Washington. Sales declined 0.5 percent, the steepest since January 2007, after a 1.4 percent gain the prior month.

Retail sales were projected to fall 0.3 percent after an originally reported 0.4 percent drop the prior month, according to the median estimate in a Bloomberg News survey of economists.

Housing Impact

The worst housing slump in a quarter century and shrinking access to credit threatens to hurt spending this quarter. The economy lost 17,000 jobs in January, the first drop in more than four years. The Standard & Poor's 500 Index has fallen three consecutive months, the longest losing streak since 2003, eroding households' investment portfolios.

Consumers are increasingly limiting expenses to those they can't avoid. The amount Americans must spend each month on debt service, housing, medical costs, and food and energy bills rose to 66.9 percent of their total spending in December, the highest since records began in 1980, according to Bloomberg figures.

``Food prices have been rising and gasoline prices have been rising and so we got a little boost to overall sales there,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who forecast retail sales would advance 0.2 percent. ``There's evidence here that the slump in the housing market is affecting spending.''

Excluding automobiles, purchases gained 0.3 percent after a 0.3 percent decline in December.

Dealerships

Sales at automobile dealerships and parts stores rose 0.6 percent after a decline of 1.1 percent in December, the Commerce Department said.

General Motors Corp., the world's largest automaker, on Feb. 1 reported an unexpected gain in January U.S. sales, with cars rising 0.2 percent and light-trucks increasing 4.3 percent.

Ford Motor Co., Chrysler LLC and most Asian automakers said U.S. sales fell last month, putting the industry on course for a third consecutive annual decline.

``There is still a lot of concern about consumers,'' David Wyss, chief economist at Standard & Poor's in New York, said in an interview with Bloomberg Radio. ``Car sales did really badly during the month. People are going to continue to worry about this and darn well ought to continue to worry.''

Filling station sales rose 2 percent in January after remaining unchanged the prior month, today's report showed. Regular gasoline reached as high as $3.11 a gallon in early January, about 11 cents more than the average for the prior month, according to AAA. Excluding gas, retail sales rose 0.1 percent.

GDP Calculation

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.2 percent, after a 0.1 percent decrease the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

Today's Commerce Department report on retail sales also runs counter to industry figures that show January sales fell at stores from Target to Nordstrom Inc. even as some retailers slashed prices by as much as 75 percent. Sales at stores open at least a year rose 0.5 percent from a year earlier, the worst January since 1970, according to the International Council of Shopping Centers.

The industry figures account for about 17 percent of total retail sales, which make up almost half of consumer spending. Retailers' January results followed the worst holiday shopping season since 2002, according to ICSC.

A U.S. recession over the next 12 months is now an even bet, according to a Bloomberg survey of economists taken from Jan. 30 to Feb. 7. The odds of a recession rose from 40 percent in January.