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 But the outlook for consumer spending was tempered by another report
on Friday showing sentiment among households ebbed in early
February. Still, the increase in consumer spending last month
underscored the economy's resilience and challenged the view that a
recession was looming.
"The markets may have decided that the U.S. is headed for recession,
but obviously no one told U.S. consumers," said Paul Ashworth, chief
economist at Capital Economics in Toronto.
The Commerce Department said retail sales excluding automobiles,
gasoline, building materials and food services increased 0.6 percent
last month after an unrevised 0.3 percent decline in December.
These so-called core retail sales correspond most closely with the
consumer spending component of gross domestic product. Economists
had forecast core retail sales increasing 0.3 percent last month.
U.S. stocks, which had been aggressively sold this week on concerns
the economy was heading into recession, rallied on the data. Market
sentiment was also buoyed by a rebound in oil prices from 12-year
lows.
Prices for U.S. Treasury debt fell, while the dollar <.DXY> rose
against a basket of currencies.
Though signs of firming consumer spending are likely to be welcomed
by Federal Reserve officials, the stock market turmoil and tame
inflation environment make it unlikely the U.S. central bank will
raise interest rates next month. Rate hike prospects for the rest of
the year have also diminished.
The Fed raised its short-term interest rate in December, the first
increase in nearly a decade.
"From the Fed's perspective, any further evidence of the U.S.
economy weathering the market turmoil at the start of the year is
confirmation the Fed should continue to focus on the longer run and
ignore short-term disruptions," said Lindsey Piegza, chief economist
at Stifel Fixed Income in Chicago.
Consumer spending accounts for more than two-thirds of U.S. economic
activity and is being supported by a tightening labor market, which
is starting to lift wages. Savings, which hit a three-year high in
2015, are seen boosting future spending.
Q1 GDP ESTIMATES RISE
Growth in consumer spending moderated in the fourth quarter. That,
together with weak export growth due to the strong dollar, efforts
by businesses to sell inventory and cuts in capital goods spending
by energy firms, restrained GDP growth to a 0.7 percent annual pace.
However, weak reports on inventories, factory orders and
construction spending suggest the economy grew at about a 0.2
percent rate in the last three months of 2015.
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In the wake of the retail sales report, forecasting firm
Macroeconomic Advisers raised its first-quarter GDP growth estimate
by one-tenth of a percentage point to a 2 percent annual rate, and
economists at Morgan Stanley lifted their forecast to a rate of 1.5
percent from 1.2 percent.
A separate report showed the University of Michigan's consumer
sentiment index fell to a reading of 90.7 in early February from 92
in January as households worried about the economic outlook.
Consumers, however, remained upbeat about their personal financial
situation and anticipated that low inflation would boost their
purchasing power. Consumers expect inflation to average 2.4 percent
over the next five years, down from 2.7 percent in the January
survey and the lowest reading since the question was added to the
monthly survey in 1990.
"The Fed closely watches the consumer survey measures of inflation
expectations, and while today's data is only the preliminary report,
it does increase the risk that the Fed's next hike is delayed beyond
our current June call," said Michael Feroli, an economist at
JPMorgan in New York.
Inflation, which is currently running below the Fed's 2 percent
target, could remain benign. The Labor Department reported on Friday
that import prices dropped 1.1 percent in January after a similar
decrease in December. Import prices have declined in 17 of the last
19 months, reflecting the robust dollar and plunging oil prices.
While lower oil prices have translated into cheaper gasoline,
boosting household discretionary spending, they are also weighing on
sales at service stations.
In January, a 3.1 percent drop in receipts at service stations
restricted the gain in overall retail sales to 0.2 percent. Retail
sales for December were revised to show a 0.2 percent rise instead
of the previously reported 0.1 percent dip.
(Reporting by Lucia Mutikani; Additional reporting by Dan Burns in
New York; Editing by Paul Simao)
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