February 13, 2010 in Business

Retail advance welcomed

But global uncertainty, jobless rate cast shadow
Martin Crutsinger Associated Press
 

WASHINGTON – A modestly better-than-expected report on retail sales for January could suggest stronger economic growth in coming months. But this week’s severe snowstorms will likely depress activity in February.

The 0.5 percent gain the Commerce Department reported Friday exceeded the 0.3 percent rise economists had expected. Strength came from a surge at general merchandise stores. These include big chains such as those owned by Wal-Mart Stores Inc. Excluding autos, sales rose 0.6 percent.

Higher consumer spending is vital because it accounts for about 70 percent of economic activity. Economists caution, though, that the spending increases seen since summer could falter as the jobs crisis weighs on a fledgling recovery.

They noted a second report that showed consumer confidence slipped in early February. The Reuters/University of Michigan consumer sentiment index dipped to 73.7 for early February. That was down from 74.4 in January.

Some analysts said the unsettled global economy is eroding confidence that the United States can sustain a recovery from the worst recession in decades.

A debt crisis in Greece has plunged the euro, the currency used by 16 European nations, into the worst turmoil since it was launched 11 years ago. Financial markets fear a domino effect that could derail a global rebound.

Concerns about the global economy were raised, too, by China’s move to restrict lending for a second time in a month to cool a credit boom. The order for banks to increase reserves against bad loans renewed fears that a flood of lending in China might be fueling a bubble in stock and real estate prices.

But economists said the biggest threat to the U.S. economy remains the reluctance of U.S. consumers to keep spending.

“We expect that lingering high unemployment, weak income growth, low confidence, tight credit conditions and the continuing need to de-leverage will constrain consumption growth for at least this year and possibly well beyond,” said Paul Ashworth, senior U.S. economist at Capital Economics.

Adding to the caution was a separate Commerce report on businesses’ inventories. It said companies reduced their stockpiles 0.2 percent in December. Economists had expected firms to boost their inventories 0.2 percent.

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