U.S. Economy: Retail Sales Rise Less Than Forecast

03/13/2007

By Shobhana Chandra

March 13 (Bloomberg) -- Retail sales in the U.S. rose less than forecast as the coldest February in more than a decade kept shoppers home and added to concerns the economic slowdown will deepen.

The 0.1 percent gain, largely because of gasoline and car purchases, followed no change in the prior month, the Commerce Department said today in Washington. Sales excluding automobiles unexpectedly dropped 0.1 percent after a revised 0.2 percent gain that was smaller than previously reported.

The figures point to a gradual slowdown in consumer spending, which Federal Reserve Chairman Ben S. Bernanke has called a ``mainstay'' of the expansion. Economists at Credit Suisse and Macroeconomic Advisers were among those who lowered their forecasts for first-quarter economic growth.

``This is mostly weather-related,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, the only economist in a Bloomberg News survey to forecast the drop in purchases aside from cars. ``The underlying dynamics are still decent when it comes to consumer spending. It's weaker than last year but not a lot.''

Treasury notes extended gains immediately following the report. The yield on the 10-year note fell to 4.49 percent at 2:39 p.m. in New York, from 4.55 percent late yesterday.

Stock prices extended declines after a separate report raised concern the crisis in mortgage lending was worsening.

Mortgage Delinquencies

Subprime borrowers fell behind on their mortgages at the highest rate in four years in the fourth quarter and delinquencies rose on all types of U.S. home loans, according to a report from the Mortgage Bankers Association today.

The Dow Jones Industrial Average was down 195 points at 2:39 p.m. in New York, led by declines in financial stocks.

In a further sign of a slowdown, business inventories rose 0.2 percent in January as sales declined by the most in four months, the Commerce Department reported separately. Rising inventories may limit orders to factories in coming months, which will slow production lines, economists said.

Economists had forecast retail sales to rise 0.3 percent, according to the median estimate in a Bloomberg News survey. Forecasts ranged from a decline of 0.2 percent to a gain of 0.5 percent. Retail sales account for almost half of all consumer spending, which in turn makes up two-thirds of the economy.

Sales excluding motor vehicles and gasoline declined 0.3 percent, the most in almost three years.

Bad Weather

An International Council of Shopping Centers report last week showed the smallest February same-store sales gain in three months due in part to the colder temperatures. Last month was the coldest February since 1994, according to the National Climatic Data Center in Asheville, North Carolina.

``It does appear that the weather was a bigger factor than we had assumed,'' said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. ``There was concern from department stores that the cold weather was keeping people out of the stores.''

Sales at clothing stores last month dropped by the most since September 2005, today's report showed. General merchandise store sales declined 0.6 percent, the most since June 2004.

Blizzards in the Midwest and Northeast damped sales of appliances and sporting goods last month at Wal-Mart Stores Inc. The world's biggest retailer last week said February same-store sales rose at the slowest pace since November.

Purchases at restaurants and bars, furniture, electronics and building material stores also declined last month.

Dealer Sales

Automobile dealers showed a 0.9 percent gain in sales and higher gasoline prices last month contributed to increased sales at service stations.

Consumer spending may grow at an annual rate of 3.2 percent this quarter, after a 4.2 percent pace in the previous three months, according to the median forecast of economists surveyed by Bloomberg from March 1 to March 7. David Greenlaw, chief fixed income economist at Morgan Stanley lowered his spending forecast to 3.2 percent from 3.7 percent after the report.

Spending growth has averaged a 3.3 percent annual rate since 1990.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales declined 0.2 percent in February after rising 0.3 percent. The government uses data from other sources to calculate the contribution from the three categories excluded.

`Mainstay'

``Consumer spending continues to be the mainstay of the current economic expansion,'' Bernanke said in congressional testimony last month.

Bernanke said the economy will expand at a ``moderate'' pace, with a ``reasonable possibility'' growth will strengthen during the middle of the year. He also estimates slower growth will help keep inflation contained. Fed policy makers next meet on March 20-21.

Labor market figures last week helped explain why consumers will keep shopping, economists said. Employers added 97,000 jobs in February, the unemployment rate unexpectedly fell to 4.5 percent, and hourly wages rose more than forecast, the Labor Department figures showed.

Luxury retailers such as Saks Inc. may be one area of the retail industry that benefited more than others from a jump in bonus payments early this year, economists said. The Birmingham, Alabama-based Saks, owner of the Saks Fifth Avenue chain, said February same-store sales surged 25 percent, the best monthly advance in at least six years, as it sold more spring fashions without discounts.