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Consumers keep shopping despite headwinds

- The Washington Times - Monday, May 13, 2013

Consumers remained largely undaunted by the budget wars in Washington last month, with retailers reporting a 0.1 percent increase in sales after a 0.5 percent slump in March, the Census Bureau reported Monday morning.

Sales were led by strong gains in clothing, autos, electronics, eating out and home improvement, but were substantially offset by a 4.7 percent drop in gasoline sales largely due to falling prices at the pump.

The closely watched "core" measure of sales, which excludes volatile autos, gasoline and home-improvement purchases, jumped by 0.5 percent after rising by 0.1 percent in March.

"Consumers opened their wallets somewhat in April" despite fears that the budget wars and unusually cold spring weather would put a damper on their shopping mood, said Sung Won Sohn, economics professor at California State University Channel Islands.

"Washington had a hand in slowing sales, but not as much as expected so far," he said. Consumers appear to have weathered the rise in payroll and income taxes at the beginning of the year and have not been put off much by the latest standoff over $85 billion in across-the-board "sequester" budget cuts, he said.

"The underlying strength of the economy supporting retail is good," he said, noting that consumers are drawing strength from the gradual strengthening of the job market, and rising stock and home prices. The Dow Jones industrial index of 30 top stocks fell slightly at the opening bell, and closed down 26.81 points to 15,091.68 for the day, although the broader Standard & Poor's 500 index was up a fraction at 1633.77.

Despite the drop, Ted Weiseman, economist at Morgan Stanley, said the healthy spending report surprised Wall Street forecasters and has prompted him to raise his estimate of growth in the first half of the year. Growth likely rose at a solid 2.8 percent pace in the first quarter, and is down somewhat to a softer 1.5 percent in the current quarter, he said.

Chris Williamson, economist at Markit, called the sales report a "welcome improvement" and said "consumer confidence has shown surprising resilience this year" in the face of budget cuts and tax increases.

"There is little sign of a deep downturn" that many economists had feared, he said.

Steady job growth helped offset some of the pain from the tax increases earlier this year that many analysts feared would inhibit shoppers. The economy added 165,000 jobs in April. It has created an average of 208,000 jobs a month since November, well above the monthly average of 138,000 for the previous six months.

Cheaper gas is leaving consumers with more disposable income. The national average price has risen slightly over the past week to $3.58 a gallon. But it is still 21 cents lower than the peak price reached Feb. 27.

And a surging stock market and increases in home prices may be making consumers feel wealthier and more inclined to spend.

This article is based in part on wire service reports.

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