Investors cautious despite rebound in US retail sales

US consumer confidence and retail sales rebounded sharply in the few weeks before the end of the Iraq war was in sight, according to reports released yesterday.

The figures were the strongest support yet for those, including the US Federal Reserve, who argued the economy's weakness was temporary.

But investors reacted cautiously, with US stocks falling back after a strong opening.

The 2.1 per cent jump in retail sales in March was the biggest one-month increase since October 2001 and the second-biggest since 1992. The consumer sentiment index from the University of Michigan rose to a four-month high of 83.2 in April from a nine-year low of 77.6 in March.

Both were ahead of expectations. The March sales rebound followed a 1.3 per cent drop in February. Stripping out car sales, the rise was 1.1 per cent.

The figures point to the resilience of US consumer spending in the face of stock market slumps, terrorist attacks, corporate scandals and war.

"Never sell the US consumer short," said Mr Ken Mayland of ClearView Economics. "Consumers continue to show a propensity to spend, despite the strong headwinds of war, job losses and faltering confidence levels," said Ms Gina Martin at Wachovia Securities.

Retail spending was much more robust than anyone imagined and that should have some major implications for first-quarter growth," said Mr Joel Naroff of Naroff Economic Advisors. "While the economy is clearly not out of the woods yet, the retail sales and consumer confidence reports provide hope that it will rebound."

The Commerce Department retail sales figures contrasted with statements this week from leading retailers, which reported disappointing sales in March.

The Labour Department said wholesale prices jumped 1.5 per cent in March - the second-biggest increase in a decade. The rate of increase over the past quarter, due largely to the oil price, has raised concerns among some economists about risks to corporate profits and inflation.

Odds on a future Federal Reserve interest rate cut shortened slightly, suggesting markets remained sceptical of a sharp economic rebound or a new inflation threat. - (Financial Times Service, Reuters)