Americans increased their spending in April at retail businesses, buying more cars and clothes while paying less for gas. The rebound from a weak March suggests consumers may help boost economic growth again this spring.
Retail sales edged up 0.1 per cent in April from March, the Commerce Department said Monday. That's an improvement from a 0.5 per cent decline in March, which was the largest drop in nine months.
The April gain was stronger when taking out the effect of lower gas prices, which reduced sales at gas stations 4.7 per cent — the largest decline since December 2008. The retail sales report is not adjusted for price changes.
When excluding gas station sales, retail spending rose 0.7 per cent. And core retail sales, exclude gas, autos and building supplies, increased 0.5 per cent. Economists pay close attention to core sales because they strip out the most volatile categories.
Sales of autos rose 1 per cent in April, rebounding from a 0.6 per cent drop in March. Sales at clothing stores increased 1.2 per cent and sales at general merchandise stores, a category that covers department stores, rose 1 per cent. Sales were also strong at building materials and garden supply stores and electronics and appliance stores.
Consumers increased their spending in April, despite paying higher Social Security taxes that has reduced their paychecks this year. Their spending will likely add to economic growth in the April-June quarter. Consumer spending makes up roughly 70 per cent of economic activity.
"This is a good start to the second quarter," said Jennifer Lee, senior economist at BMO Capital Markets. "The rest of the year is expected to rise further on stronger household finances."
The economy grew at a 2.5 per cent annual rate from January through March, up from a 0.4 per cent rate in the October-December quarter of 2012. The gain was largely because of the fastest growth in consumer spending in more than two years.
But most of the increase came from greater spending at the start of the quarter. Consumers cut back sharply on retail spending in March, while paying more for utilities to heat their homes during a colder-than-usual month.
Some economists worried that the weak month of spending in March was a sign that the tax increase was starting to catch up with the consumer.
But other factors appear to have made the consumer more resilient.
Steady job growth helped offset some of the pain from the tax increase. The economy added 165,000 jobs in April. And it has created an average of 208,000 jobs a month since November. That's well above the monthly average of 138,000 for the previous six months.
Cheaper gas is leaving consumers with more disposable income. The national average price has risen slightly over the past week to $3.58 a gallon. But it is still 21 cents lower than the peak price reached on Feb. 27.
And a surging stock market and increases in home prices may be making consumers feel wealthier and more inclined to spend.
The economy is benefiting from the Federal Reserve's aggressive stimulus actions, which have lowered borrowing costs for consumers and businesses and helped lift the stock market to record highs. The Fed has said it plans to keep short-term interest rates at record lows at least until unemployment falls to 6.5 per cent.