Growth in sales at U.S. retailers slowed in January, partly due to harsh winter weather across much of the country, but the trend remained supportive of an acceleration in the economy.
Total retail sales rose 0.3 percent for a seventh straight month of advances, the Commerce Department said on Tuesday, but this was below the 0.5 percent increase posted in December.
Economists who had expected a 0.6 percent gain said sales were likely to bounce back quickly.
Consumers seem to have got 2011 off to a slow start but we can chalk up a lot of that to the weather. The bulk of those lost sales will now be made up in February, said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
Bad weather also affected January's employment report and is making it hard to get a clear read of the economy. Still, economists say activity is transitioning from a recovery to a self-sustaining phase.
Other reports on Tuesday also supported the strengthening economy theme, with a gauge of manufacturing in New York state rising to an eight-month high in February and import prices surging last month.
Robust consumer spending, which accounts for 70 percent of U.S. economic activity, spurred the economy to a 3.2 percent annual growth pace in the fourth quarter.
Most economists did not view the pull back in sales last month as the start of a trend. They argued an improving labor market and the $858 billion tax package enacted last year would help consumers to keep spending, though not at the pace seen in the fourth quarter.
We would not be surprised to see a stronger profile for consumption as the quarter progresses, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank in New York.
Consumer spending increased at a 4.4 percent rate in the fourth quarter, but modest downward revisions to November and December sales figures suggested this estimate could be trimmed when the government publishes its second GDP estimate next week.
Traders seized on the below-expectations retail sales data and a pull back in energy shares to give the U.S. stock market a breather after recent hefty gains. But safe-haven government bond yields rose, while the dollar scaled an eight week high against the yen.
CORE SALES UP 0.5 PCT
Sales excluding autos increased 0.3 percent last month, below economists' expectations for a 0.5 percent gain, after rising 0.3 percent in December. But so-called core retail sales, which exclude autos, gasoline and building materials, increased 0.5 percent after slipping 0.1 percent in December.
Core sales correspond most closely with the consumer spending component of the government's GDP report.
Last month's small rise in sales was a surprise as some major U.S. retail chains had reported receipts that exceeded analysts' expectations.
There are concerns, however, that higher food and cotton apparel prices could hurt sales as they are adding pressure to shoppers whose budgets are already being pinched at the gasoline pump.
Rising cost pressures were underscored by a report from the Labor Department showing import prices jumped 1.5 percent, nearly double economists' expectations, on strong commodity prices.
This is a sign that the economy is accelerating; it provides further evidence that core consumer inflation has bottomed, said Sweet. But I don't think it sounds any alarm bells (on inflation).
While other advanced economies are raising red flags on inflation, the Federal Reserve is little worried about a pick-up in price pressures and officials have repeatedly said core inflation remains too low for comfort.
The government is expected to report on Thursday the core consumer price index, excluding food and energy, rose 0.1 percent in January from December. Overall CPI is seen up 0.3 percent after rising 0.5 percent in December.
Further evidence that economic activity was gaining momentum came in a report from the New York Federal Reserve which showed a gauge of manufacturing in New York State rose in February to its highest since last June.
The report was the latest to suggest the manufacturing sector remains strong even as the inventory rebuilding cycle starts to wind down.
A second report from the Commerce Department showed business inventories in December increased to their highest since January 2009. However, the pace of inventory accumulation is slowing.
Inventories are a key component of GDP changes. The restocking slowed sharply in the fourth quarter to subtract from GDP growth since the second quarter of 2009 when the recovery started.
(Additional reporting by Jessica Wohl in Chicago; Editing by Chizu Nomiyama)