Bullish retail sales bolster economic outlook

Wed Mar 13, 2013 5:08pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. retail sales expanded at their fastest clip in five months in February, the latest sign of momentum for an economy facing headwinds from higher taxes and pricier gasoline.

The solid sales came on the heels of strong gains in employment and manufacturing. But the improvement in the economic picture is likely insufficient to compel the Federal Reserve to reduce its monetary policy support.

"Consumers have been less fazed by the increase in taxes than we expected," said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh. "Because the labor market has been doing a bit better than we were expecting, people are feeling a bit confident and not cutting back their spending."

Retail sales increased 1.1 percent, the largest rise since September, after a revised 0.2 percent gain in January, the Commerce Department said on Wednesday. That was well above economists' forecasts for a 0.5 percent advance.

So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of the government's measure of gross domestic product, rose a stronger-than-expected 0.4 percent.

The upbeat report helped extend a stocks rally on Wall Street, with the Dow Jones industrial average rising for a ninth straight session for the first time since 1996.

It also lifted the dollar to a seven-month high against a basket of currencies. Prices of U.S. government debt slipped.

The healthy sales gains came despite the end of a 2 percent payroll tax cut and a hike in tax rates for wealthy Americans at the start of the year.   Continued...

Shoppers look over items on sale at a Macy's store in New York, November 23, 2012. REUTERS/Keith Bedford