Ahead of the Bell: US Retail Sales

WASHINGTON -Retail spending by U.S. consumers likely cooled off in April after two months of big gains.

Economists predict that retail sales rose just 0.2 percent last month, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. Eastern time Tuesday.

Retail sales increased 0.8 percent in March and 1 percent in February, aided by a healthier job market and a mild weather. That pushed sales to a record high of $411.1 billion, 24 percent above the recession low hit in March 2009.

But some economists say those gains may have been overstated by a warmer winter, which accelerated some hiring and other economic activity. They expect that led to slower growth in consumer spending in April.

In addition, gasoline prices have fallen sharply in the past month. While that should help consumer spending going forward, the drop in prices likely cut into last month's sales data. Retail sales are not adjusted for price changes, so falling gasoline prices would mean lower sales at service stations in April.

The retail sales report represents the government's first look at consumer spending for the April-June quarter. Consumer spending is closely watched since it accounts for 70 percent of economic activity.

In the January-March quarter, overall economic growth slowed to an annual pace of 2.2 percent. That's down from the 3 percent increase in the October-December period, but faster than last year's 1.7 percent pace.

The slowdown occurred because of weaker government spending and business investment. Consumer spending grew at an annual rate of 2.9 percent in the first quarter, the fastest pace in more than a year.

Economists expect consumer spending will remain solid in the coming months. Falling gas prices and modest job gains could increase Americans' confidence in the economy.

The University of Michigan said its Consumer Sentiment index for May rose to its highest level since January 2008.

Retail gas prices have dropped 5 percent since peaking in early April. The national average fell to roughly $3.73 per gallon on Monday, roughly 20 cents cheaper than a month ago, according to a survey by AAA.

But income growth has lagged behind inflation. That could weaken further if job gains don't pick up in coming months. Workers' average hourly earnings have risen just 1.3 percent in the 12 months that ended in April. That's roughly half the pace of inflation over the same 12 months.

And job growth has slowed from the start of the year. Employers added an average of 252,000 jobs per month from December through February. The average fell to just 135,000 jobs per month in March and April.

Many economists expect job growth will pick up in the next few months. But few see it being as strong as earlier this year. That should keep consumers spending and help the economy grow at a moderate pace.