U.S. Retail Sales Rise Unexpectedly in April

shoppers clothing store retail sales april
Toby Talbot/AP

By Lucia Mutikani

WASHINGTON -- U.S. retail sales unexpectedly rose in April as households bought automobiles, building materials and a range of other goods, pointing to underlying strength in the economy.

The Commerce Department said Monday retail sales edged up 0.1 percent after a revised 0.5 percent decline in March.

Economists polled by Reuters had expected retail sales, which account for about 30 percent of consumer spending, to drop 0.3 percent last month after a previously reported 0.4 percent decline in March.

So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, increased 0.5 percent after nudging up 0.1 percent in March.

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The increase in core sales, coming on the heels of relatively strong job growth during the last three months, should help to ally fears of an abrupt slowdown in the economy early in the second quarter even as government austerity is starting to put a strain on manufacturing.

"Consumer spending looks to have started the second quarter off on a solid note," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

U.S. stock index futures trimmed losses, while the dollar rose against the yen and the euro. Prices for U.S. Treasury debt fell.

Households are spending despite incomes being pinched by the end of a 2 percent payroll tax cut on Jan. 1. In addition, across-the-board government spending cuts kicked in March 1.

The economy grew at a modest 2.5 percent annual rate in the first quarter. The second-quarter growth pace is seen below 2 percent.

The tone of the retail sales report was mostly firm. Receipts at auto dealerships rose 1.0 percent after falling 0.6 percent in March. Excluding autos, sales dropped 0.1 percent after falling 0.4 percent in March.

Though falling gasoline prices pushed down receipts at gasoline stations, sales excluding gasoline recorded their largest increase since December.

Stripping out gasoline and autos, sales rose 0.6 percent.

Sales at building materials and garden equipment suppliers increased 1.5 percent, the largest rise since September. That reflects gains in homebuilding as the housing market recovery gains momentum.

Receipts at clothing stores rose 1.2 percent, the biggest increase since February last year.

Sales at sporting goods, hobby, book and music stores gained 0.5 percent. Receipts at electronics and appliances stores increased 0.8 percent, while sales at furniture stores were flat. Sales at restaurants and bars also increased.

However, receipts at grocery stores fell.