Retail Sales Spike

(CBS/AP)  Cash-flush consumers kept shopping counters humming last month, propelling sales at the America's retailers to the highest level in a year.

The Commerce Department reported Tuesday that retail sales rose by a strong 1.8 percent in March from the previous month — three times bigger than the 0.6 percent increase that some economists were forecasting.

Shoppers treated themselves to a wide range of goods in March, splurging on cars, clothes, furniture and building and garden supplies.

The latest snapshot of consumers' spending appetite is good news for the economic recovery's vigor. Consumer spending accounts for roughly two-thirds of all economic activity in the United States. Thus, consumer behavior plays an important role in shaping the recovery.

The 1.8 percent increase in retail sales, the biggest advance since March last year, followed a brisk 1 percent rise in February, which turned out to be much stronger than the 0.6 percent increase first estimated a month ago.

The revised figures put consumer spending closer to the track economists had assumed going into the first quarter when they figured big tax refunds would propel spending for the first half of the year, Rex Nutting of CBS Marketwatch reports.

Analysts believe that the economy will grow at a healthy rate of around 4.5 percent in the first six months of this year, supported by both consumer and business spending.

The Federal Reserve since June of last year has held a key short-term interest rate at a 45-year low of 1 percent. Extra-low borrowing costs have motivated some consumers and businesses to step up spending and investment, forces that are helping the economy grow.

Fed Chairman Alan Greenspan and other Fed policy-makers have reminded Main Street and Wall Street numerous times that rates can't stay at such super-low levels indefinitely.

That has prompted some economists to predict that the Fed will start pushing up rates later this year. Others, however, don't see a rate increase until 2005. There seems to be agreement, though, that the Fed will leave rates alone at its next meeting in May.

Some Fed policy-makers have suggested that there needs to be a recovery in the job market before the Fed start ordering rates to go up.

After months of lackluster job gains, the economy in March added 308,000 jobs — the most in four years. President Bush has trumpeted that as evidence his economic policies are working. But presumptive Democratic presidential nominee John Kerry says that's not the case and has pointed to the net 1.84 million jobs the country has lost since Bush took office in January 2001.

Continued improvements in the job market, however, would bode well for consumer spending in the months ahead and probably would erase fears voiced by analysts earlier this year of the possibility of an economic slowdown in the second half of this year, economists say.