U.S. retail sales came in stronger than expected in January. Fuelled by higher gasoline prices and increased demand for building materials, U.S. ex-auto retail sales rose 1.3% during the month, the biggest gain since September 2000.

“However, including auto sales, the headline result took a 0.9% spill, bang on our forecast but weaker than consensus estimate of a 0.5% drop,” reports BMO Nesbitt Burns.

“The decline was not surprising, given wavering consumer confidence, harsh weather, war concerns, and a soft economy. Still, look beyond the headline figure to find some good nuggets to chew on,” says Nesbitt. “December’s total retail sales increase was revised up to +2.0% from +1.2%. Other than gasoline and building materials, food sales and general merchandise registered healthy gains.”

TD Bank says, “This morning’s numbers, taken together with the upward revisions to last month’s figures, were generally stronger than expected. The data point to possible upward revisions to fourth-quarter consumption. In addition, the gain in the ex-autos measure suggests that underlying consumer spending has momentum — momentum that will help sustain overall spending as the effects of price discounting and low-interest-rate financing incentives diminish.”

CIBC World Markets comments that the core sales result was twice its forecast, and even further from the consensus call. “Looking ahead, February store sales will be crimped by higher gasoline bills, along with any actual impact from the war jitters. Our view is that the war is being overemphasized as a reason behind the sluggish pace for the U.S. economy.”

RBC Financial hints extrapolates the data to also suggest that consumers will have been a very supportive force for the Canadian economy during the fourth quarter of 2002.

On the job front, RBC notes that U.S. jobless claims fell to 377,000 last week, although the prior week’s claims were revised up to 395,000. “On balance, initial claims seem to be trending down, although they have continued to fluctuate quite a bit during the past several months. While these levels continue to point to a flat labour market, it is reassuring that the labour market no longer seems to be deteriorating,” it says.

“Underlying consumer spending continues to hang in reasonably well, despite the recent slide in confidence. However, a bigger test lies ahead with war jitters mounting, oil prices soaring and daily terrorist alerts, ” concludes Nesbitt.