Sun, May 13, 2001 page11

• US retail sales edge upward in April

  ECONOMY Business increased at auto dealers, building materials outlets and department stores, as consumer sentiment rose to the highest level in four months

  • BLOOMBERG
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  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.

  Lower interest rates have led to an increase in mortgage refinancing this year. In March, an index of applications to refinance mortgages rose to the highest level since October 1998, according to the Mortgage Bankers Association of America.

  Consumers often spend the money they save when their mortgage payments are reduced.

  "Consumers continue to show resilience," said Richard Yamarone, senior economist at Argus Re-search Corp in New York.

  "Strong income growth, income tax refunds and mortgage refinancing are fueling current spending activity." April's increase in retail sales followed declines in March and April and exceeded analysts' estimates for a 0.1 percent rise.

  Automobile dealer sales, including new and used vehicles, rose 1 percent last month after falling 0.2 percent in March.

  Before the report, analysts expected a drop in auto dealer sales after industry figures showed a decrease during the month. Sales of cars and light trucks fell to 16.7 million units at an annual rate in April, the lowest this year, down from 17.1 million in March, industry data showed last week.

  The government's auto figures don't always track industry statistics because the Commerce Department surveys auto dealers, while industry statistics are gathered from the nation's automobile manufacturers.

  Sales of building materials, hardware, garden supplies and other goods increased 1.5 percent in April the largest since a May of last year. Sales at department stores rose 1.8 percent and 1.6 percent at clothing and accessory stores.

  AnnTaylor's sales rose 1.2 percent, helped by a 12 percent gain at Ann Taylor Loft stores, the seller of women's career clothing announced yesterday. American Eagle Outfitters Inc, which sells clothing for teenagers and young adults, said sales rose almost 23 percent on strong demand for men's polo shirts and women's Capri pants.

  Gasoline service station sales rose 2.5 percent in April, reflecting higher prices. The price of retail gasoline rose to US$1.66 per gallon in April, up 15 percent from the previous month and the highest since June, according to data from the Department of Energy.
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