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Posted at 12:28 PM ET, 02/15/2011

Retail sales inch up in January

By Danielle Douglas | Capital Business

Analysts were a bit deflated by the marginal gains in retail sales in January, but they saw the momentum of the past seven months as a positive indicator for the economic recovery.

Retail and food service sales for last month penciled in at $381.6 billion, an increase of 0.3 percent from December, and 7.8 percent higher than January 2010, the U.S. Commerce Department said Tuesday. Without gasoline and auto, total retail and food sales increased 0.2 percent in January.

While retail sales following the frenzied holiday season tend to slump, some economists expected a jump this time because January marked the first month that many Americans saw their paychecks increase after a Social Security tax cut. Analysts blamed the snowstorms that shut down large parts of the country for the lower-than-expected numbers. That impact was felt in segments such as home-building materials, which showed a 2.9 percent decline, said Michael Niemira, chief economist of the International Council of Shopping Centers

Still, analysts said that even the modest increase is a positive sign that consumers are supporting the economic recovery with their wallets.

Christopher G. Christopher Jr., senior principal economist at IHS Global Insight, pointed to the 1.2 percent increase in non-store retailers, which includes on-line merchants. Department stores, he noted, also fared well, with 0.8 percent in sales. Consumers were still eager to part with their cash, he said, even while holed up in their homes during inclement weather. Because the storms hit in the middle of the week, Christopher suggested, there was momentum for weekend shopping once the roads were cleared.

Some observers, however, say the tepid sales numbers show consumer fatigue.

"Consumers that were quite strong in the fourth quarter probably needed to take a bit of a breather, particularly against a backdrop in which food and energy prices are rising," said economist Michael Feroli of JPMorgan Chase. "That's sapping some of the purchasing power that they would otherwise have."

Gasoline sales, as widely expected, rose 1.4 percent last month, thanks to a jump in prices. Meanwhile, auto and other motor vehicle dealer sales registered an uptick of 0.6 percent from December to January; year-over-year, the segment grew 16.7 percent.

Rising commodity prices are indeed putting the pinch on consumers, and that pressure is likely to rise in the coming months as retailers are expected to hike their prices. A number of companies, including Kraft, Nine West and Whirlpool, are considering price increases due to the soaring costs of raw materials, like cotton, meat and leather. Manufacturers and retailers have largely absorbed these costs to bolster demand, but they may pass these expenses on to consumers.

"I think the consumers can handle the bid," said Christopher. "For some, any price increase is terrible. But this is nothing that is going to derail what we've been noticing for the past two quarters."

Sales are up more than 14 percent than the low in December 2008. Officials revised total sales for November to December 2010 from 0.6 percent to 0.5 percent.

Economists' expectations may have been a little too high after the results from the fourth quarter, "but we're not off to the races," JPMorgan's Feroli said. Lackluster employment numbers still plague the recovery, he said.

"There are obviously lots of ways of cutting into this data, but when you look at the broad trends its suggests that the underlying trends are healthy, encouraging and sustainable," Niemira said. "It's a noisy report on a relatively low base of sales, and because it's a low volume month it can be much more volatile."

By Danielle Douglas | Capital Business  | February 15, 2011; 12:28 PM ET
Categories:  Retail  
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Next: How has the recession affected your spending and saving habits?


Why were retail sales lower than expected because of the snowstorms? Those who were predicting 7-8 percent had heard of the snow. The problem is the unpatriotic nature of me and the Post correspondents and Bill Gates. Obama moved away from stimulus for the lower and middle income and gave us affluent $2100 in Social Security tax cuts ($4300 if our wives made $100,000). To our everlasting shame, we didn't go out and spend it as well as the average American would have. Or, perhaps, the Administration should be ashamed of such a foolishly structured stimlus.

Posted by: Anonymous | February 15, 2011 11:21 AM | Report abuse

I think February will show more gains.
Everywhere I went last weekend I waited in a line to check out.
It sure seemed to me like people were spending.

Posted by: Anonymous | February 15, 2011 12:12 PM | Report abuse

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