Retail data buoy stocks on signs consumers keep spending

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Wall Street today is rethinking the death of the U.S. consumer.

Stocks are broadly higher, heading for their third straight gain, thanks in part to the government’s report on surprising strength in retail sales in February. The Dow Jones industrial average was up 208 points, or 3%, to 7,138 just before noon PDT, bringing the three-day advance to 9%.

Total retail sales were down 0.1% for the month, but that was largely because of the continuing slump in auto sales.

Excluding autos, sales were up 0.7%, a better-than-expected showing. And January’s sales gain excluding autos was revised to a 1.6% rise, from the 0.9% gain first reported.

Spending rose last month in key retail sectors including clothing, electronics and appliances, furniture and healthcare, analysts at Bespoke Investment Group noted.

‘Looking through the categories, the increase appears broadly based as no single category is driving the increase; instead most are up for the past two months,’ economists at Goldman Sachs & Co. said in a report.

‘Some of the increase could be due to clearance of unsold merchandise and the impact of a phasing out of discounts around Christmas . . . but that is unlikely to explain all the strength,’ Goldman said.

Tony Crescenzi, bond market strategist at Miller, Tabak & Co., suggests that ‘a major factor behind the increase must be the increase in the cost of living adjustments (COLA) given to the roughly 50 million Social Security recipients and to union and other workers with wage agreements tied to the government’s COLA.

‘For 2009, the COLA was 5.8%, reflecting the increase in the consumer price index through the third quarter of 2008. The increase boosted the average size of monthly Social Security checks to about $1,153 from $1,090,’ Crescenzi said.

He also points to a jump in federal tax refunds: The Treasury paid out $139.6 billion in refunds through February, about $18 billion more than a year earlier.

Still, with Americans’ net worth slashed by the plunge in housing prices and the stock market’s meltdown, and with layoffs continuing to soar, no one believes that Americans have launched a spending spree.

But with consumers accounting for two-thirds of economic activity, the numbers may be enough to pare back some of the most pessimistic forecasts for the economy’s rate of shrinkage in the current quarter -- and that’s making Wall Street feel a little better.

-- Tom Petruno