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Last Updated: Tuesday, 14 February 2006, 15:38 GMT
US retail sales soar in January
US shopper with two trolleys
Could interest rates and fuel costs finally slow consumer spending?
US consumers packed the shops in the first month of 2006, driving retail sales far higher than expected and boosting hopes for US economic growth.

New data from the Commerce Department showed sales up 2.3% on December and 8.8% higher than a year earlier.

Consumer spending is a key driver for the US economy, and observers had been predicting much slower growth.

But the rise in sales may also increase the likelihood of a further rise in interest rates.

The next Federal Reserve rate-setting meeting is in early March - the first under new Fed chief Ben Bernanke, who makes his inaugural appearance before Congress on Wednesday.

Households may be tapped out and dipping into savings and wealth, but that still hasn't slowed them down one bit
Joel Naroff, Naroff Economic Advisors

Borrowing costs have risen 14 times in the past 20 months, and the strong sales could suggest upwards pressure on prices - a tendency the Fed, and Mr Bernanke is keen to head off.

But early figures for February could yet head off that possibility, since private sector research indicates that heavy snowfalls in parts of the US have already begun to dent consumer spending.

In addition, recent research is reinforcing the fear that US consumers are feeling the pinch of rising interest rates, soaring energy prices and flat wages, with savings falling into negative territory during 2005.

"Warm weather and consumers' willingness to spend every penny they have led to a huge increase in retail sales," said Joel Naroff, head of Naroff Economic Advisors.

"Households may be tapped out and dipping into savings and wealth, but that still hasn't slowed them down one bit."

Mail order woes

The January rise was the biggest since May 2004. Even without the particularly volatile automobile sector, the growth in sales was still 2.2%.

All sectors made solid gains - except for catalogue and internet shopping, where sales fell 2.6%.

2006's opening performance marks a turnaround from the previous month, which has now been re-estimated downwards to just 0.4% from a previous estimate of 0.7%.

That anaemic December performance came as overall economic growth in the final three months of 2005 came in at just 1.1% on an annual basis.

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