US retail sales roar back, manufacturing improves

WASHINGTON, Feb 19 (Reuters): US retail sales increased by the most in nearly two years in January after two straight monthly declines as Americans boosted purchases of motor vehicles and other goods, pointing to the economy's continued resilience despite higher borrowing costs.

Coming on the heels of news on Tuesday that monthly inflation picked up last month, signs of strength in consumer spending could fuel financial market speculation that the Federal Reserve could continue raising interest rates through summer to cool domestic demand.

Robust retail sales gains, together with other data on Wednesday showing production at factories improving last month, led economists to raise their economic growth forecasts for the first quarter and declare that there was no imminent recession.

But fears that the US central bank could lift borrowing costs higher than currently thought are keeping expectations of a downturn in the second half on the table.

"Every day the economy does not lose steam, the risks go up astronomically that the Fed will lose patience and make those recession forecasts a reality by jacking up rates too high," said Christopher Rupkey, chief economist at FWDBONDS in New York.