Retail sales surge forward
March 14, 2000: 11:39 a.m. ET
February retail sales rise 1.1%, above expectations and topping January
By Staff Writer M. Corey Goldman
NEW YORK (CNNfn) - U.S. retail sales surged ahead in February following a temporary lull the month before as consumers continued to spend on goods and services in the face of rising short-term interest rates.|
Sales by U.S. retailers rose 1.1 percent in February, the Commerce Department reported Tuesday, just above the 1 percent gain expected by analysts polled by Briefing.com and higher than the revised 0.4 percent pace posted in January. Excluding auto purchases, sales rose 1 percent, up from January's 0.5 percent decline and above the 0.7 percent gain expected.
The numbers were yet another sign that the U.S. economy continues to barrel ahead as consumers spend their cash on merchandise such as new cars, appliances, furniture and clothing. Excluding gasoline -- the prices for which has risen to near-record levels in recent months -- sales gained 0.9 percent. Since February 1999, total retail sales have gained 9.4 percent.
"While this report yielded few surprises, it simply highlights the relentless strength in the economy and provides more ammunition for the Fed to continue tightening policy," said Sherry Cooper, chief economist with Toronto-based brokerage Nesbitt Burns Inc.
No slowing down
Four interest rate increases from the Fed since last June and the threat of another quarter-point move in a week's time has done little to temper U.S. consumers' whim to buy. Higher rates boost borrowing costs for consumers and businesses, slowing the economy and keeping prices in check.
Considering that the U.S. unemployment rate is at a generational low, paper gains from stocks and other investments have increased and overseas demand for American-made goods are on the rise, consumers are more confident than ever, and willing to crack open their checkbooks to spend on new items.
Harvinder Kalirai, an economist with IDEA Global.com, told CNNfn's Before Hours that he doesn't expect rising interest rates to put much of a dent in consumer spending in the months ahead -- something that will continue to fuel the economy's progress and perhaps even lead to rising prices for goods and services. (458KB WAV) (458KB AIFF)
Indeed, equity investors on Wall Street paid little heed to the figures, figuring that the Fed will still raise interest rates at its policy meeting next Tuesday no matter what the numbers showed. Bonds chose to shrug off the numbers on expectations that February inflation data due later in the week will confirm that prices remain stable -- even though sales are on the rise.
A surging economy
Retail sales is a significant indicator for Wall Street because consumer spending accounts for more than two-thirds of U.S. economic output and has played a significant role in driving the current economic expansion, now in its record 108 month.
The U.S. economy grew at a whopping 6.9 percent pace in the final three months of last year, the fastest pace in more than three-and-a-half years, while consumer spending gained at a nearly 6 percent rate in the same period.
Rising gasoline prices spurred a good portion of last month's gains. The value of February sales at the pumps rose 4.3 percent, the largest gain since April 1999, after falling 0.6 percent in January. Compared with a year ago, gasoline sales rose a whopping 26.6 percent, the largest year-to-year gain since a 33 percent increase in July 1980, Commerce said.
Gasoline prices have surged above $1.50 a gallon in many parts of the country and in some areas as high as $2 a gallon as restrictions in world oil supply have lifted the retail cost of fuel for consumers.
Still, higher gas prices didn't stop consumers from buying new cars. Auto sales jumped 1.4 percent in February after rising 3 percent in January.
Car buying frenzy
Carmakers such as General Motors Corp. (GM: Research, Estimates), DaimlerChrysler Corp. (DCX: Research, Estimates), Toyota Motor Sales (TM: Research, Estimates) and American Honda Motor Co. (HMC: Research, Estimates) posted their best performance in 12 years last month, aided by strong consumer demand and discount incentives that lured buyers to showrooms in record numbers.
All told, "the data point to still-robust consumer spending, sustained by tight labor markets, solid income gains, exuberant attitudes, large tax refunds, and still substantial equity market capital gains," said Steven Wood, an economist with Banc of America Securities in San Francisco.
Sales of durable goods -- items such as appliances that are built to last -- rose 0.7 percent after rising 2 percent in January. Sales of non-durable goods increased 1.4 percent following a 0.8 percent drop.
Sales at clothing stores gained 1.1 percent after a 0.8 percent increase in January. General merchandise store sales, which include chain department stores, rose 0.6 percent after a 0.9 percent jump in January.