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Retail sales edge up
February gain is lower than expected, as pillar of economic strength holds steady.
March 13, 2002: 10:59 AM EST

NEW YORK (CNN/Money) - U.S. retail sales rose slightly in February, the government said Wednesday, but more weakly than many economists expected, reinforcing the idea that the recovery from the nation's first recession in a decade may not be as robust as investors had hoped.

Sales at retailers edged up 0.3 percent in February, the Commerce Department said, after falling a revised 0.3 percent in January. It was the biggest gain in retail sales since last October but well below forecasts for a gain of 0.9 percent, according to economists surveyed by

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Excluding volatile sales of automobiles and car parts, sales rose 0.2 percent after rising 1.2 percent in January. Economists surveyed by expected sales excluding autos to rise 0.5 percent. Auto sales are about a quarter of all retail sales.

"The mystery is how to square with this with both the Redbook and Bloomberg chain store sales surveys, which pointed to a huge gain," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. "Maybe it will come in March, or today's numbers will be revised up. Either way, this is a brief diversion, not a change of course."

U.S. stock prices fell after the data, as traders were disappointed that the numbers were weaker than expected, while Treasury bond were mostly higher. Many economists thought Wall Street was overreacting, and later in the morning, stocks were well above their lowest levels of the session.

"While the latest retail sales reading is disappointing, the picture of a solid consumer remains, with positive growth in the first quarter, despite the boom in fourth-quarter spending," said Salomon Smith Barney economist Melanie Jani.

To keep consumers spending despite a recession that some economists think began in March 2001, leading to more than 1.4 million job cuts, the Federal Reserve cut its target for short-term rates 11 times in 2001.

It decided at its first policy meeting in 2002 to leave rates alone, and Chairman Alan Greenspan said recently that the recession was over. Many observers think the Fed will adopt a neutral stance at its March 19 meeting instead of the aggressive recession-fighting posture it's held for more than a year.

With recent unexpected strength in the beleaguered manufacturing sector, fourth-quarter gross domestic product (GDP), the labor market and other areas of the economy, some economists had begun to wonder if the Fed would start raising rates to fight inflation. But Greenspan has pointed out that the recovery will not be particularly strong, in part because consumer spending has been so consistent, meaning inflation will not likely be a problem for some time.

"The recovery is proceeding, but gradually, and that's actually healthy," said Anthony Chan, chief economist at Banc One Investment Advisors. "It's the kind of recovery central bankers dream of -- gradual, not explosive, and therefore long-lasting and sustainable."

Consumer spending accounted for about $6 trillion of the $9 trillion U.S. economy last year, and its strength helped keep GDP growing in the fourth quarter after a negative third quarter, meaning a recession, as commonly defined -- two straight quarters of shrinking GDP -- was avoided.

But the National Bureau of Economic Research, which defines recessions by different criteria, including employment and personal income, said this week it wasn't ready to declare the recession over.

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In its report, the department said furniture sales jumped 1.5 percent, followed by sales at electronics and appliance stores, up 1.1 percent, and sales at restaurants and bars, also up 1.1 percent.

"Though the rise in consumer demand was not great, the strong increases in big-ticket items indicates that households are still confident and willing to spend," said Joel Naroff, chief economist at Naroff Economic Advisors Inc.

The worst-performing sector was the broad "sporting goods, hobby, book and music store" sector, which fell 1.6 percent. Sales at building and gardening retailers fell 0.4 percent.

Sales at gasoline stations were unchanged from January but were still down a whopping 13 percent from February 2001, reflecting the low prices that helped fuel consumer spending in other areas.  graphic