The Commerce Department reported Wednesday that retail sales rose by 0.3 percent last month after having fallen by 0.4 percent in December as retailers suffered through their worst Christmas shopping season in five years. The increase was led by higher demand for new cars and a big jump in sales at gasoline service stations that primarily reflected rising pump prices.
On Wall Street, the better-than-expected reading on retail sales helped lift spirits by easing concerns about the severity of the economic slowdown. The Dow Jones industrial average rose 178.83 points to close at 12,552.24.
But the positive retail number did little to change the view of economists who are forecasting the economy will fall into a recession in the first half of this year. They said the slump should be shorter and milder given that Congress quickly passed and President Bush signed on Wednesday a $168 billion stimulus package designed to jump-start growth by showering consumers with rebate checks starting in May.
The January gain in retail sales came as a surprise following reports from the nation's big retailers that January had been a disappointing month. Wal-Mart had said strapped consumers were using their holiday gift cards to purchase basic items such as diapers and laundry detergent rather than iPods and the latest DVDs.
Economists had predicted a 0.3 percent decline in January sales. They noted that without the big jump in gasoline, sales would have risen by a much smaller 0.1 percent. They pointed to a number of areas connected to the troubled housing industry where sales took a tumble including declines at furniture, hardware and appliance stores.
Given all the troubles facing the economy from a prolonged slump in housing to rising food and energy costs, job losses and turbulent financial markets, analysts said it was not surprising to see lackluster retail sales. Consumer spending is closely watched because it accounts for two-thirds of economic activity.
"Consumer spending is still decelerating quite dramatically," said Nariman Behravesh, chief economist at Global Insight, a private forecasting firm, which is predicting the economy will be in a recession in the first half of this year, contracting at annual rates of 0.4 percent in the current quarter and 0.5 percent in the second quarter.
"It will be one of the milder recessions we have had. We don't expect anything awful, but it will be a recession," Behravesh said. Part of the reason for the optimism about a short downturn is the view that spending will be bolstered by the 130 million tax refund checks of between $300 and $1,200 - more for families with children.
Behravesh said GDP should rebound strongly to a growth rate of 3.4 percent in the third quarter of this year.
The GDP grew at an anemic rate of 0.6 percent in the final three months of last year, a sharp slowdown from a 4.9 percent growth rate in the third quarter.
"Household spending is starting to shut down," said Bernard Baumohl, managing director of the Economic Outlook Group, another consulting firm. "The failure of incomes to keep pace with inflation and the decline in household wealth due to the falling value of real estate and stock investments have so eroded consumer confidence that shoppers are staying away from stores."
The economy is being aided by aggressive interest rate cuts delivered by the Federal Reserve, which slashed a key interest rate by 1.25 percentage points in January, the biggest one-month reduction in rates in a quarter-century.
Federal Reserve Chairman Ben Bernanke is scheduled to testify before the Senate Banking Committee on Thursday and his testimony will be closely watched for any signals he may give about future rate cuts.
The 0.3 percent rise in retail sales in January was the biggest increase since sales jumped by 0.8 percent in November. Auto sales increased by 0.6 percent last month, the best showing since a 0.7 percent rise in September, although the advance puzzled economists given that automakers had reported a drop in unit sales for the month.
Clothing stores saw an increase of 1.4 percent but general merchandise stores, the category that includes department stores and big chains such as Wal-Mart, saw a tiny increase of 0.1 percent.
