The Commerce Department reported Wednesday that retail sales rose by 0.3 percent last month. Sales had fallen by 0.4 percent in December as retailers suffered through their worst Christmas shopping season in five years. The increase was led by strong demand for new cars and a big jump in sales at gasoline service stations, which reflected higher pump prices.
The January performance came as a surprise to analysts who had been forecasting a 0.3 percent decline for the month. However, the January rebound may not last given all the problems facing consumers from the steep slump in housing to job losses and a severe credit squeeze.
Consumer spending, which accounts for two-thirds of total economic activity, is being closely watched for signals of whether the country is falling into a recession.
"As the consumer goes, so goes the economy," said Joel Naroff, chief economist at Naroff Economic Advisors. "It appears the consumer may have slowed down, but not left the field of battle."
In another sign of unexpected strength, the Commerce Department said that businesses built up their stockpiles of merchandise in December at the fastest pace in 17 months. Inventories rose by 0.6 percent in December, slightly higher than the 0.5 percent gain that economists had been expecting.
That strength could result in an upward revision in overall economic growth for the October-to-December quarter from the current estimate of growth at a weak annual rate of 0.6 percent. That very weak figure had increased worries that the country could be falling into a recession.
Some economists believe a downturn has already started, although the Bush administration insists that while growth has slowed, the economy will be able to avoid a recession with the help of a sizable stimulus package that Congress passed last month.
That package is designed to boost consumer spending by sending rebate checks worth hundreds of dollars to 130 million Americans starting in May.
The economy is also being aided by aggressive interest rate cuts delivered by the Federal Reserve, which slashed a key interest rate by 1.25 percentage points in January, the biggest one-month reduction in rates in a quarter-century.
Federal Reserve Chairman Ben Bernanke is scheduled to testify before the Senate Banking Committee on Thursday and his testimony will be closely watched for any signals he may give about future rate cuts.
The 0.3 percent rise in retail sales in January was the best showing since sales had jumped by 0.8 percent in November. Auto sales increased by 0.6 percent last month, the best showing since a 0.7 percent rise in September.
Sales at gasoline stations were up 2 percent, the biggest rise since November, and a gain that reflected higher pump prices. The retail sales figures are not adjusted for price changes.
Excluding gasoline, retail sales rose a more modest 0.1 percent in January, and excluding autos, sales were up 0.3 percent.
Clothing stores saw an increase of 1.4 percent but general merchandise stores, the category that includes department stores and big chains such as Wal-Mart, saw a tiny increase of 0.1 percent.
Sales fell at a number of establishments including furniture stores, electronics stores, hardware stores and sporting goods stores.
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