Buying spree on cars, gardens, furniture leads to retail sales

WASHINGTON -- Consumers snapped out of a funk in March and splurged on cars, garden supplies and furniture. The biggest increase in retail sales in 17 months occurred even as energy prices soared.

After a string of mostly dismal economic reports, analysts were encouraged by Friday's sales figures and another report showing that consumers' confidence improved in April. Still, they weren't ready to declare the economy's trouble days over.

Profit-pressed businesses and battered manufacturers remain reluctant to make big investments in capital projects or in hiring, major forces holding back the economic recovery. Turning that situation around may take time, even with a swift military victory in Iraq, some economists said.

"Businesses and investors have a lot of concerns and worries that the end of a war is not just going to magically wipe away," said Sung Won Sohn, chief economist at Wells Fargo.

Friday's economic news nonetheless raised hopes that consumers, the main force keeping the economy going so far, will keep their wallets and pocketbooks sufficiently open to prevent an economic slide into recession.

The Commerce Department reported that retail sales jumped 2.1 percent in March, the best showing since October 2001 and a turnaround from a 1.3 percent drop reported in February.

"The reports of consumers' death are apparently quite premature," said Joel Naroff, president of Naroff Economic Advisors.

Much of the strength in March came from a 5.3 percent increase in automobile sales, boosted by favorable financing and other incentives. Sales of garden and building supplies soared by a record 7.9 percent. Furniture sales rose 1.5 percent. Clothing sales were up 1.1 percent, and sales at bars and restaurants rose 0.8 percent.

Excluding automobile sales, which can swing widely from month to month, retail sales still posted a solid increase of 1.1 percent in March, heartening economists.

Weak spots remain

Weak spots remained. Department store sales dropped 0.3 percent in March, consistent with Thursday's report of disappointing chain-store sales as Wal-Mart, J.C. Penney and others struggled.

Although consumers are being selective in what they buy, better feelings about the economy could make them feel a bit less cautious, economists said.

A preliminary report from the University of Michigan showed its index of consumer sentiment rising to 83.2 in April, up from a reading of 77.6 in March. Signs of military success in Iraq helped lift confidence, economists said.

On Wall Street, however, investors were cautious. The Dow Jones industrial average lost 17.92 points to close at 8,203.41.

In a third report, a run-up in energy costs stoked by the war pushed wholesale prices up by 1.5 percent in March, following a steep 1 percent jump in February, the Labor Department said.

Although energy prices rose 5.7 percent in March, crude oil prices have been retreating recently. That should make the inflation picture look better and put less of a strain on the pockets of businesses and consumers, economists said.

Excluding energy and food prices, which can swing widely from month to month, core wholesale prices rose 0.7 percent in March, compared with a 0.5 percent drop registered in February.

The rise in core prices largely reflected higher car and truck prices. But economists said the increase in automobile prices was misleading and reflected a statistical quirk in which less aggressive discounting was reflected but not more favorable financing offers.

Excluding higher automobile costs, core wholesale prices were flat in March.

A long period of tame inflation has allowed the Federal Reserve to keep interest rates at a 41-year low of 1.25 percent in a bid to help energize the listless economy. Some economists said the retail sales report greatly lowered the odds of a Fed rate cut at or before the central bank's next meeting on May 6.

Fed Chairman Alan Greenspan and his colleagues are hopeful that if the war in Iraq is resolved quickly and successfully, the economy will get back on surer footing.

The strong showing on retail sales in March may help boost economic growth in the first quarter of 2003 from a 1 percent rate to a still below-par growth rate of around 1.7 percent to 2 percent, some economists said. The government reports first-quarter economic growth on April 25.

Even with some of the hopeful economic news Friday, the economy -- which suffered massive job losses in February and March -- remains fragile, economists said.

"We are at a critical juncture with respect to our economic fortunes," said Mark Zandi, chief economist at Economy.com.

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On the Net

Retail: www.doc.gov

PPI: stats.bls.gov