Retail Sales Rebound, Post Largest Gain in a Year

By Lucia Mutikani

WASHINGTON -- U.S. retail sales rose in March for the first time since November as consumers stepped up purchases of automobiles and other goods, suggesting a sharp slowdown in economic growth in the first quarter was temporary.

The Commerce Department's fairly sturdy report Tuesday together with other data showing producer inflation crept up last month should keep the Federal Reserve on track to start raising interest rates later this year.

%VIRTUAL-pullquote-A rebound in retail sales in March provides evidence that the U.S. economy is pulling out of a soft patch seen at the start of the year.%An unusually snowy winter undercut activity early in the year. Labor disruptions at normally busy West Coast ports, a stronger dollar and softer global demand also have hurt growth.

"A rebound in retail sales in March provides evidence that the U.S. economy is pulling out of a soft patch seen at the start of the year. The improvement in retail sales ... adds to the likelihood of policymakers voting to hike rates this year," said Chris Williamson, chief economist at Markit in London.

Retail sales increased 0.9 percent in March. That was the largest gain since the same month last year and snapped three straight months of declines that had been blamed on harsh winter weather.

U.S. stocks were trading lower as unexpectedly strong earnings from banking giants JPMorgan Chase (JPM) and Wells Fargo (WFC) were offset by Johnson & Johnson's announcement that it was cutting its full-year earnings forecast due to the impact of the buoyant dollar.

Prices for U.S. government debt rose, while the dollar was weaker against a basket of currencies.

Retail sales excluding automobiles, gasoline, building materials and food services rose 0.3 percent after dropping 0.2 percent in February.

The so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists shrugged of the mild rebound and said it reflected the lingering effects of cold weather.

With savings at their highest level in just over two years, thanks to a tightening labor market and cheaper gasoline, there is great potential for consumers to boost spending in the months ahead and cushion the economy against the strong dollar.

Data on trade, consumer spending, manufacturing and home building have suggested the economy grew at a sub-1.5 percent annual rate in the first quarter.

But economists could raise their estimates in the wake of a second report Tuesday from the Commerce Department, which showed retail inventories excluding automobiles rose 0.5 percent in February after gaining 0.2 percent in the prior month.

Auto Sales Surge

In a separate report, the Labor Department said its producer price index for final demand increased 0.2 percent last month, with rising prices for goods accounting for more than half of the increase. The PPI had declined 0.5 percent in February.

In the 12 months through March, producer prices fell 0.8 percent, the biggest year-on-year decline since the revamped series started in 2009, after sliding 0.6 percent in February.

Low inflation and signs of a sharp slowdown in economic growth in the first quarter have prompted most economists to push back their expectations for the first Fed rate hike to either September or October from June. Others believe the U.S. central bank will only tighten monetary policy in 2016.

The Fed, which has a 2 percent inflation target, has kept its key short-term interest rate near zero since December 2008.

A key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent after being unchanged in February. Core PPI was up 0.8 percent in the 12 months through March.

Retail sales last month were buoyed by a 2.7 percent rise in automobile sales, the biggest increase since March 2014. Sales at clothing stores increased 1.2 percent.

Receipts at building material and garden equipment stores advanced 2.1 percent, the largest rise since July 2013.

There were also increases in sales at furniture stores, restaurants and bars, and sporting goods and hobby shops. However, sales at electronics and appliance stores slipped as did receipts at online stores.