Retail sales rise. Shoppers unfazed by payroll tax hike.

Retail sales rose 1.1 percent in January, despite worries that the expiring payroll tax and high gas prices would curb spending. Is the rise in retail sales a sign of more sustained economic growth? 

Gregory Bull/AP/File
Chris King fills up his truck at a gas station displaying a price of $4.59 for a gallon of self-service regular gas last month in San Diego. Higher gas prices contributed to the boost in retail sales, with gas station receipts jumping by 5 percent.

February wasn’t supposed to be a great month for consumer spending. Between the payroll tax increase, rising gas prices, and uncertainty in Washington over spending cuts and the looming possibility of a government shutdown, analysts expected growth to be tepid, at best.

Instead, consumers spent at their fastest rate in five months, boosting retail sales for February a robust 1.1 percent, surprising economists who had expected an average 0.5 percent. Eight of the 13 major spending categories saw increased spending, with gasoline, auto sales, and groceries leading the charge.

Some of that growth was driven by a rise in gas prices and auto sales, both of which can be volatile month to month. Nevertheless, “core sales”  – a measure that excludes autos, gas stations, and building materials – increased a solid 0.4 percent. While economists aren’t sure whether the sales numbers indicate stronger growth long term, they do seem to agree that the economy isn’t tanking – and that the spending cuts and budget impasse in Washington have not discouraged consumers from shopping.

“So much for the theory that the end of the payroll tax cut was going to kill the consumer,” Brian Westbury, chief economist with privately owned advisory firm First Trust in Wheaton, Ill., wrote in an analysis. “Consumer spending should accelerate because of continued growth in jobs, hours, and wages.”

Last month, leaked e-mails from high-ranking Wal-Mart officials suggested the company's sales were terrible, possibly portending dismal numbers on the consumer spending front. That proved not to be the case. Sales from "general merchandise stores," including discount retailers like Wal-Mart and Target as well as departments stores like JCPenney, grew by 0.5 percent – far from spectacular, but definitely not disastrous, either. 

Much of the movement was due to higher gas prices, with gas station receipts surging 5 percent (the highest such increase since the 6 percent spike in August of last year).  Auto sales increased 1.1 percent, up from 0.4 percent growth in January.  

“The recent strength on the autos front is mostly due to release of pent up demand,” Chris Christopher, an economist from IHS Global Insight in Lexington, Mass., said in an analysis. “The housing market is starting to gain some traction which is spurring some home improvement activity. Building material and garden supply stores saw sales rise on average 1.0 percent over the past four months??.

 The numbers follow good news on the employment and housing fronts, continuing the trend of slow, steady economic gains. But the news wasn’t all rosy: The same high gas prices that buoyed overall retail sales dragged down discretionary spending.

 “Rising pump prices drove gasoline station sales higher and that is keeping many Americans away from the shopping mall and restaurants,” Mr. Christopher wrote.

Some experts are hopeful that the recent good news is a trend, not an anomaly.

"The data add to the view that the US economy continues to show reassuring resilience in the face of fiscal headwinds, and that consumers will help drive a further upturn in the economy in the first quarter,” Chris Williams, chief economist for Markit.com, wrote in his analysis. “The brighter picture for retail sales will give the Fed some encouragement that policy is working to help drive an increasingly robust economic upturn. However, it remains far too early to gauge just how sustainable looking that upturn really is."

Others argue that the numbers are all over the place and that it's impossible to make a judgment either way.

“This is a very uneven report. On the surface the numbers seem strong; however, the details reveal a much different story,” Christopher said. “Grocery stores are performing well, while restaurants took a hit. Gasoline stations are up, while department stores suffer. Building material is looking good, while furniture took a dive. “

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