Retail sales rise 1.6% in March, raising odds of a sustained recovery

Americans heartened by an improving job market flocked to shopping malls and auto showrooms in March, raising the odds of a sustained economic recovery.

Retail sales increased 1.6% from February, more than anticipated and the biggest gain in four months, according to figures from the Commerce Department issued Wednesday. Another report showed consumer prices rose 0.1%.

“What we’re seeing now is the consumer take part in the recovery,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “The Fed’s not taking the punch bowl away quite yet,” because inflation is “very tame,” he said.

The economy expanded “somewhat” across most of the U.S. in March as consumer spending and manufacturing improved, signaling the recovery is broadening without gaining much speed, according to the Fed’s Beige Book of regional economic activity. Central bankers will use the report as a basis for formulating monetary policy when they next meet April 27-28.

Retail sales were projected to increase 1.2%, according to the median estimate of economists in a Bloomberg survey. Forecasts ranged from gains of 0.5% to 2.1%. Purchases in February and January were revised to show 0.5% gains, up from the previously reported 0.3% and 0.1% respective increases.

The gain in consumer prices reported Wednesday by the Labor Department matched the median forecast of economists surveyed. Excluding food and energy, so-called core costs were unchanged in March, less than analysts anticipated. Compared with March 2009, the core index rose 1.1%, the smallest 12-month gain since 2004.

“Inflation as a concern is relegated to the distant future,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia. “It gives the Fed the flexibility to keep rates low for a while.”

Retail sales excluding autos rose 0.6%, surpassing the 0.5% increase projected by the median estimate of economists surveyed.

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales increased 0.5% after rising 1.2% in February.

Eleven of 13 major categories showed increases in sales last month, led by a 6.7% advance at auto dealers. Purchases of building materials jumped 3.1%, the most since November 2007, and receipts at clothing stores increased by the most in a year.

Separate figures from the Commerce Department showed a 0.5% gain in inventories in February, the most since July 2008, as companies boosted orders to keep pace with sales.