Bullish March retail sales brighten growth outlook

WASHINGTON (Reuters) - U.S. retail sales recorded their largest gain in 1-1/2 years in March, in the latest sign the economy was emerging from its weather-induced slumber and on track to accelerate in the second quarter.

The Commerce Department said on Monday retail sales increased 1.1 percent last month, the biggest gain since September 2012, as receipts rose in nearly all categories.

"The case continues to grow that the economy is bouncing back in March following an unusually severe winter," said John Ryding, chief economist at RDQ Economics in New York.

February's increase in retail sales, which account for a third of consumer spending, was raised to 0.7 percent from 0.3 percent. Economists had expected retail sales to advance only 0.8 percent last month.

Stocks on Wall Street opened higher on the upbeat report, while prices for U.S. Treasury debt fell. The dollar rose against a basket of currencies.

Retail sales added to employment data in suggesting the economy found momentum at the end of the first quarter after an unusually cold and snowy winter disrupted economic activity at the end of 2013 and the beginning of this year.

Job growth averaged 195,000 per month in February and March. First-time applications for unemployment benefits in early April fell back to their pre-recession level.

That sets up the economy for a pick-up in the second quarter, as does a fading of the drag from the expiration of long-term unemployment benefits and cuts to food stamps.

ON SOLID FOOTING

First-quarter gross domestic product growth estimates range as low as a 0.6 percent annual pace. The economy expanded at a 2.6 percent rate in the fourth quarter.

The slower growth pace in the first three months of the year was underscored by a second report from the Commerce Department showing retail inventories, excluding automobiles, rose only 0.2 percent in February after increasing 0.6 percent in January.

Businesses accumulated too much stock in the second half of last year and are placing fewer orders with manufacturers while they work through the pile of unsold goods.

That has left the inventory to sales ratio at its highest level since September 2009. But with consumers showing an increased appetite to spend, thanks to improving household wealth, businesses should be able to empty their warehouses.

So-called core retail sales, which strip out automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of gross domestic product, increased 0.8 percent in March.

February's core retail sales were revised to show a 0.4 percent rise instead of the previously reported 0.3 percent gain.

"This suggests that household spending ended the quarter on very solid footing after the wobbles in the two previous months," said Millan Mulraine, deputy chief economist at TD Securities in New York.

"This momentum is likely to continue over the next month or two as the warmer weather provides further impetus for spending, which will ensure that personal spending activity continue to provide a key source of support for economic activity."

Retail sales last month were buoyed by a 3.1 percent surge in receipts at automobile and parts dealers. That was the biggest advance since September 2012.

Excluding autos, retail sales were up 0.7 percent, the biggest increase in a year, after rising 0.3 percent in February.

Sales at building materials and garden equipment stores increased 1.8 percent, the largest rise in eight months.

Receipts at electronics and appliance stores, however, fell 1.6 percent. There were also declines in sales at gasoline stations, which fell 1.3 percent. Excluding gasoline, retail sales rose a solid 1.4 percent, the biggest rise in four years.

Sales at furniture stores increased 1.0 percent, as did receipts at clothing stores. There were also gains in receipts at sporting goods shops, restaurants and nonstore retailers.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)