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U.S. Retail Sales Unexpectedly Rose 0.3% in January

Feb. 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly rose in January as Americans spent more on cars, clothes and gasoline, a sign that the biggest part of the economy is holding up even as the housing slump deepens.

The 0.3 percent increase followed a 0.4 percent decrease the previous month, the Commerce Department said today in Washington. Excluding automobiles, purchases gained 0.3 percent after a 0.3 percent decline in December.

The figures may ease concern that the U.S. has already slipped into recession because of falling home prices and a weakening labor market. Demand from consumers, whose spending accounts for about 70 percent of the economy, will probably still wane in coming months, forcing the Federal Reserve to lower interest rates further, economists said.

``Today's report will diminish recession anxieties, but it doesn't dispel them altogether,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who accurately forecast the sales gain. ``The Fed will still likely cut rates in March because the preponderance of evidence, particularly the labor market, suggests recession risks remain.''

Treasury securities dropped after the report, with 10-year note yields rising to 3.70 percent at 9:03 a.m. in New York, from 3.66 percent late yesterday.

Economists' Forecasts

Retail sales were projected to fall 0.3 percent after an originally reported 0.4 percent decline the prior month, according to the median estimate in a Bloomberg News survey of 81 economists. Estimates ranged from a decline of 1.2 percent to a gain of 0.3 percent.

Consumers are facing the worst housing slump in a quarter century at the same time that access to credit is shrinking. The economy lost 17,000 jobs in January, the first drop in more than four years. The Standard & Poor's 500 Index has fallen three consecutive months, the longest losing streak since 2003.

Sales excluding automobiles and gasoline were unchanged. Today's report showed sales at automobile dealerships and parts stores rose 0.6 percent after a decline of 1.1 percent in December.

That contrasts with industry figures that showed cars and light trucks sold last month at a 15.2 million annual pace, down 6.7 percent from December. Auto industry sales this year are forecast to drop to the lowest level since 1998.

Gasoline Sales

Filling station sales rose 2 percent in January after remaining unchanged the prior month, today's report showed. Regular gasoline reached as high as $3.11 a gallon in early January, about 11 cents more than the average for the prior month, according to AAA. Excluding gas, retail sales rose 0.1 percent.

Sales also rose at clothing retailers, which posted a 1.4 percent increase, and grocery and beverage stores, which gained 0.6 percent. Purchases at non-store retailers, which include online and catalog sales, rose 0.5 percent.

Department-store sales dropped 1.1 percent. Stores selling building materials showed a 1.7 percent decrease in sales, after falling 2.5 percent. Sales also fell at electronics, appliance and sporting goods stores.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.2 percent, after a 0.1 percent decrease the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

Target, Nordstrom

Today's Commerce Department report also runs counter to industry figures that show January sales fell at stores from Target Corp. to Nordstrom Inc. even as some retailers slashed prices by as much as 75 percent. Sales at stores open at least a year rose 0.5 percent from a year earlier, the worst January since 1970, according to the International Council of Shopping Centers.

The industry figures account for about 17 percent of total retail sales, which make up almost half of consumer spending. Retailers' January results followed the worst holiday shopping season since 2002, according to ICSC.

Consumers are increasingly limiting expenses to those they can't avoid. The amount Americans must spend each month on debt service, housing, medical costs, and food and energy bills rose to 66.9 percent of their total spending in December, the highest since records began in 1980, according to Bloomberg figures.

A U.S. recession over the next 12 months is now an even bet, according to a Bloomberg survey of economists taken from Jan. 30 to Feb. 7. The odds of a recession rose from 40 percent in January.

BLOOMBERG