By Lucia Mutikani
WASHINGTON (Reuters) - U.S. retail sales rebounded in February and new filings for jobless benefits hit a fresh three-month low last week, suggesting the economy was regaining strength after an abrupt slowdown caused by severe weather.
The data on Thursday reinforced expectations of a pick-up in economic activity and should encourage the Federal Reserve to continue scaling back its massive monetary stimulus.
"The economy seems to be rebounding from a winter-related slump," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "We expect the Fed will stay the course with its exit strategy."
Retail sales increased 0.3 percent last month, with receipts rising in most categories, the Commerce Department said. The gain followed a 0.6 percent drop in January and ended two straight months of declines.
An unusually cold and snowy winter disrupted economic activity at the end of 2013 and the beginning of this year, holding back job growth and weighing on industrial production.
Economists had expected only a 0.2 percent increase in retail sales in February after snow and ice blanketed densely populated regions during the first half of the month.
"The consumer appears to be back in the game," said Millan Mulraine, deputy chief economist at TD Securities in New York.
"We see this as further confirmation that the underlying momentum in the economy remains quite favorable."
In a separate report, the Labor Department said initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 315,000 last week. That was the lowest reading since late November.
A four-week moving average for new claims, which irons out week-to-week volatility, fell to its lowest level since early December, a further sign of firming labor market conditions.
Stocks on Wall Street initially rose on the data, but later gave up gains as worries about Ukraine and the health of China's economy weighed. Prices for U.S. Treasury debt rose, while the dollar fell against a basket of currencies.
SALES SEEN ACCELERATING
Retail sales are expected to accelerate in the spring as warmer temperatures and improving household finances unleash pent-up demand. That should boost growth and buttress the Fed's resolve to unwind its monthly bond buying program by year end.
"I do expect some pick-up in the second quarter. A lot of consumers are going to have some cabin fever," said Alan MacEachin, an economist at Navy Federal Credit Union in Vienna, Virginia.
So-called core sales, which strip out automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of gross domestic product, rose 0.3 percent in February.
However, core sales in January were revised to show a 0.6 percent decline instead of only a 0.3 percent fall. That prompted some economists to lower their estimates for first- quarter consumer spending.
A second report from the Commerce Department showed retail inventories excluding autos posted their largest increase since July in the first month of this year. Economists said that should help offset weak consumer spending, and they raised their growth estimates as a result.
Even so, most economists expect GDP to expand at only around a 2 percent annual rate in the first quarter, which would mark a slowdown from the fourth quarter's 2.4 percent pace.
Businesses accumulated a massive amount of inventories in the second half of last year, which had led economists to expect a slower pace of restocking in January.
In January, the inventory-to-sales ratio, or the number of months it would take businesses to clear shelves, was the highest since October 2009.
Retail sales in February were supported by a rise in receipts at automobile and parts dealers, while sales at electronics and appliance stores fell.
Receipts at building materials and garden equipment stores increased, likely as consumers bought snow removal equipment.
Sales at furniture stores rose as did receipts at clothing stores and online retailers. There were also gains in receipts at sporting goods shops and restaurants. Sales at food and beverage stores, however, fell.
(Reporting by Lucia Mutikani; Editing by Meredith Mazzilli and Andrea Ricci)