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Is it buying time again?

Economists see signs of consumer confidence as retail sales post unexpected gains.

By MARTIN CRUTSINGER The Associated Press

WASHINGTON — Retail sales posted a surprising increase in February as consumers refused to let snowstorms stop them from stepping up purchases for everything from clothes to appliances. The improvement provided hope that the recovery from the recession is gaining momentum.

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A shopper checks out a new hat purchased along Roosevelt Road in Chicago. Retail sales posted an 0.3 percent rise in February, the Commerce Department said Friday, raising hopes that the recovery from the recession is gaining ground.

The Associated Press

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GEITHNER SAYS ‘ECONOMY IS HEALING,’ PREDICTS FASTER, STRONGER RECOVERY FOR U.S.

WASHINGTON — Treasury Secretary Timothy Geithner, offering his most optimistic outlook on the economic recovery to date, predicted Friday that the United States will rebound from the recession more vigorously than other advanced economies.

“We’re going to come out of this stronger than the other major economies, and we’re going to come out more quickly,” he said at the Export-Import Bank. Global growth is expected to be 4 percent this year and next, and “those forecasts seem to be going up,” he said.
While the credit crisis and near collapse of Wall Street “caused a huge amount of damage to basic confidence among businesses and families,” Geithner said the “economy is healing.”

The U.S. unemployment rate held at 9.7 percent in February, and the economy lost 36,000 jobs, fewer than economists anticipated. Earlier Friday, a Commerce Department report showed retail sales last month unexpectedly rose for the fourth time in the past five months.

“The American economy is starting to come back,” even though the recovery still feels “tough” for some, Geithner said. The government will maintain efforts to stimulate growth until private demand strengthens, he said.

The International Monetary Fund in January predicted growth of 2.7 percent in the U.S. this year, 1.7 percent in Japan, 1.3 percent in Britain and 1 percent in the euro area.

– Bloomberg News

Some economists cautioned that spending increases will remain modest as long as wages stay flat and job creation weak. But others said the fourth gain in retail sales in five months meant consumers are starting to spend with more confidence.

"This is more than a one-month wonder," said Stuart Hoffman, chief economist at PNC Financial in Pittsburgh. "This is telling us that consumers, who had been tightening their belts throughout the recession, have now loosened them a notch."

For February, sales rose 0.3 percent, the Commerce Department said Friday. That surpassed expectations of a 0.2 percent decline.

The overall gain was held back by a 2 percent decline in auto sales, partly reflecting the recall problems at Toyota. Weakness in autos also caused a downward revision in January retail sales. They were reduced to an increase of just 0.1 percent, down from the 0.5 percent originally reported.

But outside of autos, sales rose a strong 0.8 percent in February. That was far better than the 0.1 percent rise economists had expected. And for January, excluding autos, sales gained 0.5 percent, just slightly below the 0.6 percent initial estimate.

Some analysts expressed concern about whether the spending gains can be sustained, given that unemployment remains high -- 9.7 percent in February -- and consumer confidence shaky. A separate report Friday showed that consumer confidence dipped to 72.5 in early March, down slightly from a February reading of 73.5, according to a Reuters-University of Michigan survey.

"Weak jobs growth, low wages growth and tight credit mean that any further acceleration in consumption growth is unlikely," Paul Dales, an economist at Capital Economics, wrote in a research note.

Prospects would improve if businesses, which have shed 8.4 million jobs since the recession began in December 2007, start rehiring laid-off workers. That would give households the incomes they need to support spending growth.

Economists said spending in both January and February likely gained support from higher tax refunds and tax credits paid by the government during the current tax filing season. Those increases reflect some of the tax relief included in the $787 billion economic stimulus package Congress passed last year.

Some analysts said the February retail sales report made them more confident that consumer spending -- which accounts for 70 percent of total economic activity -- will be enough to support moderate economic growth this year of around 3 percent.

"This retail sales report should go a long way toward alleviating fears that we might slip back into a recession," said Sal Guatieri, an economist at BMO Capital Markets.

The overall economy, as measured by the gross domestic product, began growing again last summer. That indicated the recession had ended. GDP growth surged at a 5.9 percent annual rate in the October-December quarter. About two-thirds of that surge came from a rise in manufacturing to supply goods for businesses that had let their stockpiles dwindle.

Consumer spending actually slowed a bit in the fourth quarter. But some analysts said that, based on recent retail sales, it could strengthen in the current quarter and support a GDP gain of around 3 percent this quarter.

The February retail sales report showed widespread improvement. Sales at general merchandise stores, the category that includes big discounters such as Walmart Stores Inc., rose 1 percent after a 1.3 percent rise in January.