US retail sales rose in April for the first time in three months and consumer optimism improved this month amid a rebound in stocks after four interest-rate cuts by the Federal Reserve.
Sales at retailers rose 0.8 percent as business increased at auto dealers, building materials outlets and department stores, the Commerce Department said. The University of Michigan's consumer sentiment index rose in May to 92.6, the highest in four months, from 88.4 in April.
The rebound in sales and sentiment may mean growth will pick up because consumer spending accounts for two-thirds of gross domestic product. "This may help keep the economy's head above water" said Kenneth Mayland, president of Clear View Economics in Pepper Pike, Ohio.
US retailers such as Wal-Mart Stores Inc, AnnTaylor Stores Corp and Sears, Roebuck & Co said sales at stores open at least a year rose 3.8 percent from April 2000, according to an index of 81 chains by Bank of Tokyo-Mitsubishi Ltd. released yesterday. The firm had estimated a gain of 3 percent.
Treasury securities and stocks fell after yesterday's report, which may give Fed policy makers reason to limit interest-rate reductions to one more at their meeting Tuesday.
The 10-year note fell more than a full point, pushing up its yield 16 basis points to 5.45 percent, the highest since Dec. 4.
The Dow Jones Industrial Average fell 89 points, or 0.8 percent, to close at 10821.31. The NASDAQ Composite Index fell 22 points, or 1 percent, to close at 2,107.13.
The unexpected rise in consumer sentiment probably reflected rising stocks. The Dow rose 9 percent in April, while the NASDAQ rose 15 percent. "Consumers seem to have been willing to look on the bright side and respond almost immediately to the rebound in the market," said Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York.
With unemployment at 4.5 percent, the highest in 2 1/2 years, the economy remains weak and spending still may decline in the months ahead. Central bankers "will not be deterred from dropping rates next week and they will likely continue to indicate that the risks are weighted toward economic softness," said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania.
What's more, the Fed doesn't have to worry as much about inflation. A Labor Department report showed prices paid to producers excluding food and energy were 1.6 percent higher in April than the same month last year. That compares with a 1.3 percent increase in the 12 months ending April 2000.
Compared with March, producer prices rose 0.3 percent last month, led by a surge in gasoline prices, after falling 0.1 percent in March. Excluding energy and food, prices rose 0.2 percent in April.
Fed policy makers have reduced the overnight bank lending rate four times this year to help bolster an economy that grew at a 1.5 percent annual pace between October and March, the slowest since a 1.1 increase in the first half of 1995.
Excluding automobiles, retail sales rose 0.7 percent after falling 0.4 percent. Tax refunds and mortgage refinancing probably helped bolster sales.
Federal tax refunds totaled almost US$125 billion as of April 20, up 5.3 percent from US$118.6 billion as of April 21, 2000, according to the Internal Revenue Service. The average refund rose 5.5 percent to US$1,714.
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