Retail Sales Up; Inflation Is Still Low

Retail sales surged last month and inflation remained under control, the government said Wednesday in reports that President Bush interpreted as a sign of growing business confidence. But economists warned that the figures show recovery from the recession remains weak.

The Commerce Department said retail sales increased by a surprisingly robust 0.9% in April while the Labor Department reported a modest 0.2% growth in the cost-of-living index, which measures the impact of inflation on the family budget.

“Our inflation is doing well,” Bush told reporters. “Our economy is starting to move now. Optimism is coming back to our investment and business community.”

Economists agreed that there is little to fear from inflation at this point. The April increase works out to an annual rate of less than 3%. Even counting a 0.5% hike in March, the worst figure in 17 months, the inflation rate for the first four months of this year is only 3.3%, very close to last year’s 3.1% total.

But the retail sales figure, although encouraging, did not dispel pessimism over the pace of recovery. The 0.9% advance in April followed a 1% decline in March. And despite the April increase, merchants with operations in California said the improvement has yet to spread to the state.

“We are not ready to say that the California economy has, in any way, shape or form, improved,” said a spokesman for Dayton Hudson Corp., which operates Mervyn’s and Target stores.

A spokesman for Carter Hawley Hale, whose Broadway, Emporium and Weinstocks stores are concentrated in California, said the chain sees the state continuing to lag the rest of the nation in economic performance. He said that Northern California appears to have a slightly stronger economy than the southern half of the state but that both regions continue to suffer from consumer jitters and job losses.

According to Lynn Reaser, chief economist at First Interstate Bank in Los Angeles, job loss fears continue to haunt consumers as they have for the last six or more months, leading them to curtail spending.

“It’s awful,” said Ted Gibson, principal economist for the California Department of Finance. “And we have no reason to believe that things are improving here. All the anecdotal evidence suggests that conditions continue to be poor.”

The Labor Department, in another report Wednesday, said average weekly earnings, adjusted for inflation, declined 0.6% in April after a 0.7% drop in March.

“The recession has been over for some time,” said Barry Bosworth of the Brookings Institution in Washington. “Fears that we were going to fall back into a double-dip recession have not materialized. But it is difficult to tell the difference between the recession and the recovery because the recovery is particularly weak.”

With inflation tamed and the recovery struggling, the Federal Reserve will come under increasing pressure from the Administration to cut interest rates to stimulate economic growth in time to boost Bush’s reelection chances.

But there is no guarantee that the independent central bank will agree with the Administration’s argument. A month ago, the Federal Reserve pushed down its target for the federal funds rate, the interest that banks charge each other for short-term loans, from 4% to 3.75%.

“If the Fed were running for reelection in November, I think this would be a cause for a cut in interest rates to stimulate the economy,” Bosworth said. “But the Fed is more concerned about price stability than the average American. I think in many respects they are probably content with a modest economic recovery.”

Allen Sinai, chief economist of the Boston Co. in New York, said the Federal Reserve can afford to “put inflation on the back burner” for the time being. But he said other indicators may not be enough to persuade the bank’s board of governors to cut interest rates.

“If retail sales had come in flat in April, it would have been more clear to the Fed that easing is needed,” he said.

A member of the Fed’s Board of Governors, Lawrence Lindsey, told reporters in New York that the April retail sales and inflation numbers were “encouraging,” Reuter news service reported.

Gordon Richards, an economist for the National Assn. of Manufacturers, said the latest consumer price figures confirm earlier indicators of very low inflation.

The consumer price report came a day after the Labor Department said prices at the wholesale level also edged up by 0.2% last month.

April’s grocery store prices declined by 0.2% last month, offsetting increases in other categories. Vegetable and fruit prices were sharply lower. Gasoline prices edged up 0.2% last month, down sharply from a 0.8% spurt in March.

Excluding the usually volatile food and energy prices, retail costs rose a moderate 0.3% in April after a 0.5% jump in March.

The Commerce Department said retail sales of autos climbed 2.6% in April after a 1.9% decline in March. New cars account for about one-fifth of total retail sales.

Times staff writer Carla Lazzareschi contributed to this story.