Retail sales seen up in March on autos

WHEN: Wednesday, April 14 at 8:30 a.m. ET

REUTERS FORECASTS:

Retail sales +1.2 pct m/m after February's surprise 0.3 percent gain. Forecasts range from +0.5 pct to +3.0 pct.

Sales excluding autos +0.5 pct vs +0.8 pct in February Forecasts range from flat to +2.5 pct.

FACTORS TO WATCH:

Retail sales have been resilient despite high unemployment and the paring down of debt by households. The brightening economic picture, particularly a nascent labor market recovery, is encouraging consumers to dip into their savings to fund purchases of goods such as cars and hobby-related items.

Economists at Moody's Economy.com say first quarter consumption is shaping up to be the strongest since early 2007 and a rise in sales would add to evidence the manufacturing-led recovery is broadening out.

Retail sales will benefit from a 13.5 percent jump in auto sales to a seven-month high last month, as automakers offered discounts. Even excluding that, top U.S. retail chains reported a record rise in monthly same-store sales for March, supported by an early Easter holiday and warm weather.

Electronic and appliance sales are seen boosted by the cash for appliances program, a part of post-crisis government stimulus which gives rebates for purchases of new energy-efficient appliances. Warm weather also likely lifted sales of building materials and gardening equipment, while a rise in gasoline prices saw increased receipts at gasoline stations.

Core retail sales -- which exclude autos, gasoline and building materials -- are expected to have added to February's 0.9 percent increase. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report. Economists at IHS Global Insight estimate real consumer spending increased at a 3.1 percent annual rate in the first quarter, almost double the 1.6 percent pace in the last three months of 2009.

MARKET IMPACT

Further signs of improvement in consumer spending, a key driver of corporate profits, should help U.S. stocks.

The benchmark S&P 500 is close to its highest level in 19 months, up 77 percent since hitting bottom in early March 2009. At current levels, however, it would have to overcome resistance in the 1,200-1,220 area before heading much higher.

Yields on U.S. government debt may jump if sales ex-autos post another strong gain as this will stoke speculation that the Federal Reserve will raise interest rates sooner this year than economists have been predicting.

The 10-year yield could make another run toward 4 percent, a level briefly touched a week ago.

A dip below expectations on the other hand should soothe worries of a rate hike any time earlier than the fourth quarter and could prompt the 10-year yield to test 3.75-2.80 percent.

A report would also bolster the view the U.S. economy is outperforming Europe and Japan, helping the dollar. Key levels to watch for euro/dollar are $1.3860 and $1.4026 on the upside, while support is around 1.3493.

(Polling by Bangalore unit)

(Reporting by Lucia Mutikani, Wanfeng Zhou, Ellis Mnyandu and Richard Leong; editing by Patrick Graham)