By Lucia Mutikani
WASHINGTON, April 1 (Reuters) – U.S. retail sales increased by the most in seven months in February as motor vehicle purchases rebounded and temperatures warmed up, but surging gasoline prices because of war in the Middle East could crimp spending in the months ahead.
The Commerce Department’s delayed report on Wednesday suggested that the economy was on solid footing before the U.S.-Israel war with Iran. The conflict, which started at the end of February, has sent global oil prices surging more than 50%, and the national average retail gasoline price this week topped $4 a gallon for the first time in more than three years.
A prolonged war and further increases in gasoline prices could offset some of the anticipated boost to consumer spending and the overall economy from tax cuts, economists warned. They expected the conflict to weigh on growth in the second quarter.
“I expect consumer spending to be softer in the first half of the year than would have been the case in the absence of the surge in gasoline prices, but I project that energy prices will recede significantly within a few months, allowing real outlays to rebound in the second half of the year,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
Retail sales rose 0.6%, the largest increase since last July, after an upwardly revised 0.1% dip in January, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, rising 0.5% after a previously reported 0.2% drop in January.
BROAD INCREASE IN SALES
The Census Bureau is still catching up on data releases following delays caused by last year’s government shutdown. Some of the increase in retail sales reflected higher gasoline prices, which had started rising in anticipation of the Middle East war.
The broad rise in sales was led by a 1.2% rebound in receipts at motor vehicle dealerships amid promotions and discounts, which followed a 0.7% drop in January.
Sales at electronics and appliance stores increased 0.5%, while those at building material, garden equipment and supplies retailers rose 0.4%. Receipts at clothing and clothing accessories outlets rebounded 2.0%. Nonstore sales, which include online retail, increased 0.7%. Sales at service stations rose 0.9%. Sales at sporting goods, hobby, musical instrument and book stores advanced 1.3%.
But furniture store sales dropped 1.0% as did food and beverage store receipts.
Sales at food services and drinking places, the only services component in the report and a gauge of discretionary spending, rebounded 0.4%. Economists view dining out as a key indicator of household finances, now under threat from the month-long conflict, which wiped off $3.2 trillion from the stock market in March. Higher-income households have led consumer spending, underpinned by robust wealth levels.
Retail sales excluding automobiles, gasoline, building materials and food services increased 0.5% in February after rising 0.2% in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Consumer spending slowed in the fourth quarter, helping to hold back GDP growth to a 0.7% annualized rate. The economy grew at a 4.4% pace in the third quarter.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci )
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