Resilient retail sales show consumers are absorbing payroll tax hikes and budget cuts better than expected, possibly helped by the wealth effect from rising home and stock values.
That would suggest that the Federal Reserve's quantitative easing, which has primarily buoyed asset prices, may be having a tangible effect on the broader economy.
April retail sales rose 0.1%, topping forecasts for a 0.3% monthly decline, as gains in most categories offset a 4.7% price-led plunge in gas station receipts.
Core sales, excluding autos (up 1%), building materials (up 1.5%) and gasoline, climbed 0.5%, after advancing 0.1% in March. Sales rose 1.2% at clothing stores and 0.8% at electronics stores.
Consumers also spent more money to eat at restaurants and bars, and spent less money at grocery stores to eat at home.
U.S. stocks were mixed Monday after record or multiyear highs Friday. Michael Kors (KORS) shares rose after Morgan Stanley added the fashion apparel designer to its "best ideas" list.
Analysts predicted across-the-board federal budget cuts that began in March would be felt more severely last month, with government employee furloughs increasing. Higher payroll taxes were also expected to continue weighing on spending, especially after savings rates fell in Q1.
But home prices appreciating at prerecession rates and stocks' big 2013 gains may have offset the fiscal drag. "That's the only thing we can think of," said Sal Guatieri, a senior economist at BMO Capital Markets. "The ongoing strength in consumer spending has taken us a bit aback.
Job creation isn't bad, but it has slowed, he noted. Income gains remain subdued. Consumer confidence hasn't shot up.
Retailers also apparently expected a sales slide. They drew down inventories in March at the fastest monthly pace in two years. The drop in furniture and electronics stockpiles was the steepest since November 2008, and clothing inventories fell by the most since September 2009.
But instead consumers spent more and at a variety of outlets. Nonstore sales, which include online retailers, grew 1.4%,about double March's increase. Department stores saw a 0.3% gain, the first since July. Sporting goods and hobby stores rang up 0.5% more in receipts.
April's retail sales are consistent with an improving jobs market and show a limited fiscal drag, said Brian Jones, a senior U.S. economist at Societe Generale.
If spending holds up, it will improve the prospects for Q2 economic growth, expected to be the weakest quarter of the year.
"You've got more momentum going into the second quarter," Jones said.