Sales at US retailers rose more strongly than expected in March and firming domestic demand prompted businesses to rebuild inventories to a seven-month high in February, suggesting a broadening of the economic recovery.
The retail sales report on Wednesday painted a picture of consumer defiance in the face of high unemployment and tight access to credit, and offered hope the manufacturing-led recovery would continue when the boost from government stimulus and the rebuilding of inventories ebbs.
-- Business inventories highest in seven months
-- Consumer inflation muted, supports low interest rates
Total retail sales jumped 1.6 percent, the largest increase since November as consumers stepped up purchases of vehicles and a wide range of goods, the Commerce Department said. January sales were revised up to a 0.5 percent rise from 0.3 percent.
The data provided a fresh catalysts for stock bulls to push the S&P 500 index up through a critical level of 1,200, extending the benchmark index's gain since the March 2009 bottom to 77 percent. Consumer discretionary stocks, which include retailers and other consumer-oriented companies, were among the top gainers. US government debt prices were marginally lower, while the dollar rose against the yen. With domestic demand strengthening, businesses have restarted to rebuild inventories from record low levels. Business inventories increased 0.5 percent in February, the largest advance since July 2008, to their highest level in seven months, the Commerce Department said in a second report.
"Significant restraints on the pace of the recovery remain, including weakness in both residential and non-residential construction and the poor fiscal condition of many states and local governments," Bernanke told the Joint Economic Committee of Congress on Wednesday.
A separate report from the Labour Department showed no signs of inflation pressures, which should help the US central bank honour its pledge to keep its benchmark interest rate unusually low for an extended period. Consumer prices rose 0.1 percent last month after being flat in February. Excluding volatile food and energy prices, core inflation was unchanged in March after rising 0.1 percent the prior month.
Growing confidence in the recovery, particularly brightening prospects in the job market, is encouraging households to tap into their savings to fund purchases of goods, including luxury items. Retail sales in March were buoyed by a 6.7 percent rebound in motor vehicle and parts purchases.
Excluding motor vehicles and parts, retail sales rose 0.6 percent in March after rising 1.0 percent the prior month as a combination of an early Easter holiday and warm weather boosted receipts at clothing stores. Core retail sales, which correspond most closely with the consumer spending component of the government's gross domestic product report, rose 0.5 percent after increasing 1.2 percent February.
Analysts said this bode well for first-quarter gross domestic product growth. Consumer spending, which normally accounts for about 70 percent of US economic activity, increased at a 1.6 percent annual rate in the fourth quarter. The economy expanded at a 5.6 percent rate in the last three months of 2009.