U.S. consumer confidence slipped in February, but a stronger than expected rise in retail sales last month suggested households were feeling a bit more comfortable to spend and sustain the economic recovery.
The Commerce Department said on Friday total retail sales increased 0.5 percent. In addition, December and November were both revised to show stronger spending.
December sales were revised to down only 0.1 percent, compared with the previously reported fall of 0.3 percent, while November sales were revised to up 2 percent from up 1.8 percent.
Analysts polled by Reuters had forecast retail sales increasing 0.3 percent last month. Compared to January last year, sales were up 4.7 percent.
Worries over high unemployment eroded consumer sentiment early this month. The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for February was 73.7, down from 74.4 in late January but up from 56.3 a year ago. That was below analysts' expectation of 75.0.
However, analysts were comforted by the strong sales report.
It's a nice surprise for the economy, it suggests that the consumer is willing to spend a little. It tells us that retail sales are in a clear recovery, said Kathleen Stephansen, chief economist at Aladdin Capital Holdings in Stamford, Connecticut.
U.S. stock indexes trended lower as investors worried that China's surprise move to raise bank reserve requirements could hurt global recovery. The U.S. dollar trimmed gains versus the euro on the consumer sentiment report.
I wouldn't be surprised to see (consumer sentiment) ... fall further with unemployment still high and consumers still out of pocket, said Alan Lancz, president, Alan B. Lancz & Associates Inc in Toledo, Ohio.
Retail sales are being closely watched for signs whether consumers are healthy enough to sustain the economy's recovery once government stimulus and the boost from restocking by businesses wanes.
The economy grew at a 5.7 percent annual rate in the fourth quarter, the fastest clip in six years. The economy has grown for two straight quarters following the worst downturn since the Great Depression of the 1930s.
While the recovery in the United States is gaining momentum, Europe has stagnated. Gross domestic product in the 16-country euro-currency zone rose only 0.1 percent in the fourth quarter from the prior quarter, below the 0.3 percent forecast and well short of the 0.4 rise that lifted it from recession in the third quarter.
In another report, the Commerce Department said U.S. business inventories slipped 0.2 percent after rising by a revised 0.5 percent in November. Economists polled by Reuters had expected a 0.2 percent rise in December inventories.
High unemployment in the United States has sapped consumers' appetite for shopping, but improving labor market conditions may support future sales and help to nurse the broader economic recovery.
It is easy to paint a negative picture about the household sector given the weak labor market and the large losses of wealth over the last couple of years, but the spending data still looks pretty good, said Zach Pandl, U.S. economist at Nomura Securities in New York.
Motor vehicle and parts purchases were flat last month, after rising 0.1 percent in December.
Excluding motor vehicles and parts, retail sales rose 0.6 percent in January after slipping 0.2 percent the prior month. Economists had expected a 0.5 percent gain. Sales were boosted by electronics and appliance stores, where sales rose 1.2 percent after declining 3.5 percent in December. Sporting goods, hobby and book sales rose 1 percent last month, adding to December's 1.9 percent increase.
Sales at general merchandise stores rose 1.5 percent in January, the biggest gain since February 2009.
Core retail sales, which exclude autos, gasoline and building materials, rose 0.8 percent after falling 0.3 percent in December. Core sales correspond most closely with the consumer spending component of the government's GDP accounts.
(Reporting by Lucia Mutikani; Editing by Neil Stempleman)