U.S. RETAIL SALES RISE MASKS WEAK TREND - ANALYSTS

  U.S. retail sales rose sharply in
  February but many economists said the underlying consumer
  spending trend remains weak.
      February retail sales jumped 4.1 pct, more than the 2.5-3.0
  pct rise the financial markets had anticipated. But January's
  sales were revised down to a 7.4 pct drop, from a previously
  reported 5.8 pct decline.
      "The trend is toward continued spending but certainly at a
  much more sluggish pace," said Don Maude of Midland Montagu
  Capital Markets Inc.
      Maude averaged out the wide swings in the retail sales data
  over past four months to show that the pace of consumer
  spending is slowing.
      Combining the latest data with a 0.6 pct drop in November
  and a 4.6 pct gain in December, the average retail sales gain
  over the four months was 0.2 pct, he said, compared to to a 0.4
  pct rise for year-over-year sales through February.
      "You can see a pattern developing," Maude said. "I wouldn't
  be surprised to see a fall-off in March, especially since sales
  probably won't be boosted by auto sales as they were in
  February."
      Despite the weak underlying trend, economists were
  impressed by a robust 1.5 pct gain in total sales excluding
  autos in February. This compared to a revised 0.4 pct decline
  in January, previously reported as a 0.1 pct decline.
      "The increase in non-auto sales was broadbased, with gains
  in durable goods as well as non-durables," noted Ward McCarthy
  of Merrill Lynch Capital Markets Inc. "It was a pretty healthy
  report."
      He noted that building materials rose 1.8 pct in February
  after falling 1.7 pct in January. General merchandise store
  sales gained 1.4 pct after a 1.6 pct rise in January.
      "There are signs of life in the economy," McCarthy said.
  "But it's jumping to conclusions to extrapolate this report
  into the future." 
      A 0.7 pct increase in disposable personal income in January
  which may be linked to the new tax laws probably helped boost
  spending in February, he said.
      "A lot of people may be inadvertently under-withholding
  taxes from their paychecks," he said. "When people in this
  country get an increase in disposable income, the inclination
  is to go out and spend it," he said.
      Economists said tomorrow's release of U.S. auto sales for
  the first 10 days of March will be an important indicator of
  how much this sector will add to first quarter spending.
       Auto sales accounted for the lion's share of total
  February sales, rising 14.4 pct. This followed a 27.7 pct drop
  in January, previously reported as a 22.4 pct fall, due largely
  to the expiration of the sales tax deduction under new tax laws
  January 1, the Commerce Department noted.
      Some economists argued that the because the gain in total
  sales excluding autos also followed a decline in January, the
  strength in the February report is less than impressive.
      "There is strength in the February data, but that's because
  they were compared to low sales levels in January," said said
  Beth Reiners of Dean Witter Reynolds Inc. "We don't see it as a
  precursor of continued strength."
      Durable goods sales rose 8.8 pct in February, after falling
  17.7 pct in January. February non-durable goods sales gained
  1.3 pct, after declining 0.2 pct in January.
      Gasoline service station sales rose two pct in February,
  following a 1.9 pct gain in January, but economists said higher
  oil prices rather than an increased volume of gas sales
  probably accounted for these gains.
      Reiners also emphasized that the trend in consumer spending
  is weakening. Total retail sales on average were 123 billion
  dlrs in the fourth quarter of 1986, she said. In January, they
  fell to a seasonally adjusted 117.52 bilion dlrs, and in
  February rose to 122.29 billion dlrs.
      "On average, it looks like they'll total 120 to 121 mln
  dlrs in the first quartrer," she said. "We don't look at this
  as indication that the economy is barrelling along."
      "The number is not really that problematic for those of us
  who are constructive on the bond market," agreed Elliot Platt
  of Donaldsen Lufkin and Jenrette Securities Corp.
      Platt does not foresee potential for tighter monetary
  policy on the basis of the latest retail sales report.
      "The Fed is on hold now because the data have been so
  confusing," he said.
      "Before the 337,000 gain in February non-farm payroll
  employment, I would have looked for a discount rate cut in
  March," he said. "But now Fed officials will have to wait for
  the first quarter real U.S. gross national product data in
  April to sort things out."
  

