Consumers battling slump with wallets

WASHINGTON — Consumers cut back on car-buying in April but boosted spending in other areas, giving evidence of the economy's staying power despite soaring gasoline prices.

The Commerce Department said that retail sales overall dipped by 0.2 percent to a seasonally adjusted $378.1 billion last month but much of that weakness stemmed from a 2.8 percent plunge in car sales, the biggest setback in this category in 10 months.

Excluding autos, retail sales rose by a surprisingly strong 0.5 percent. This better-than-expected showing outside of autos was seen as evidence that the consumer is hanging tough even in the face of soaring gasoline prices and a slumping economy.

"The consumer has not given up the ghost and continues to spend," said Joel Naroff, chief economist at Naroff Economic Advisors.

Analysts said the unexpected strength showed consumer spending in many areas was holding up in April, the start of the second quarter, even before the government began mailing out 130 million economic stimulus payments, checks that are expected to give the economy a boost in coming months.

David Wyss, chief economist at Standard & Poor's in New York, said he was still expecting overall economic growth, as measured by the gross domestic product, to turn negative this quarter but that this forecast might prove too pessimistic given the strength seen in April retail sales. "It looks like it is hard to hold the American consumer back," he said.

While many analysts believe the economy has slipped into a recession, economic growth has not turned negative yet. Economists now believe the anemic 0.6 percent GDP growth rate turned in for the first quarter may be revised upward to around 1 percent.

There were indications in the retail sales report that consumers, trying to stretch their dollars, were choosing to do more of their shopping at discount stores. General merchandise stores, a category that includes big chains such as Wal-Mart, saw sales rise by a solid 0.5 percent while department stores saw sales dip by 0.1 percent.

Discounters Wal-Mart and TJX both reported solid first-quarter profits on Tuesday, another indication people are hunting for bargains in the face of layoffs, a slumping housing and gasoline prices at record highs, hitting $3.73 a gallon nationally this week.

Also Tuesday, Federal Reserve Chairman Ben Bernanke said in a speech that the turbulent financial market had eased somewhat but that the situation remained "far from normal." He said the Fed's actions, which included an unprecedented move to allow investment banks to borrow directly from the Fed, "seems to have bolstered confidence."

Janet Yellen, president of the Federal Reserve Bank of San Francisco, offered a similar assessment of financial conditions in a separate speech Tuesday. "There are some rays of hope that the strains may be easing a bit," she said. The Fed's efforts, she said, "have mitigated the worst effects of the credit crunch. But they have not resolved it. Indeed, my sense is that the process of resolution will unfold only gradually," Yellen added.

Sales at specialty clothing stores posted a 0.7 percent increase in April while sales at electronics and appliance stores were up 1.4 percent and sales at sporting goods and hobby stores rose 0.4 percent. However, sales at furniture stores remained under pressure, edging up just 0.1 percent, reflecting the prolonged slump in housing sales.

In other economic news, the Commerce Department said that business inventories edged up a tiny 0.1 percent in March, the smallest advance in a year and another sign of the weakening economy.

The small inventory rise was below the 0.4 percent increase that many economists were expecting and was an indication that businesses are holding back on adding to their stockpiles in the face of slowing demand.