U.S. retail sales, led by a rebound in the floundering demand for new cars, increased by 0.5 % last month, the U.S. Commerce Department has reported.

The monthly sales figures, released today, also boosts the government’s earlier estimate for January sales, which rose 0.3%, contrary to the 0.3% drop that had been estimated for that month.

Together, the first two months of 2005 indicate that rebounding consumer activity seen in December’s 1.3% sales rise is continuing.

For February, auto sales rose by 0.7%, recouping part of the 2.1% plunge in sales that occurred in January. That decline reflected a reduction in the attractive incentives that auto dealers had offered in December in a successful effort to reduce their inventories of unsold cars.

Excluding the rise in auto demand, retail sales were up 0.4% in February following a healthy 1% jump in January, at least partly attributed to redemptions of an estimated US$18 billion worth of gift cards purchased during December and January.

Since the recession ended in November 2001, consumers have been the standout performers for the economy, a surge in spending that was bolstered by easy credit fostered by the Federal Reserve’s low interest rates and President Bush’s sizeable tax cuts.

This year, analysts believe consumer spending will remain solid, although they are predicting it will come it at slightly lower levels given the fact that the impact of the tax cuts is wearing off and the Fed is now boosting interest rates to make sure that economic demand does not become so strong that it triggers higher inflation.

Analysts are widely expecting another quarter-point increase in interest rates on March 22, when Fed officials meet.