Retail sales jump in February. Higher taxes? No problem.

Retail sales rose a solid 1.1 percent in February as Americans spent at the fastest pace in five months. Strong retail sales suggest the Americans are still spending despite higher social security taxes and gas prices. 

Chris Keane/AP/File
A customer carries shopping bags at South Park mall in Charlotte, N.C. US consumers spent at the fastest pace in five months in February, driving up retail sales despite higher taxes and gas prices.

 Americans spent at the fastest pace in five months in February, boosting retail spending 1.1 percent compared with January. About half the jump reflected higher gas prices, but even excluding gas purchases, retail sales rose 0.6 percent.

The report Wednesday from the Commerce Department showed that Americans kept spending last month despite higher Social Security taxes that took effect this year. The retail sales report is the government's first look each month at consumer spending, which drives about 70 percent of economic activity.

Core retail sales, which exclude the volatile categories of gas, autos and building supply stores, rose 0.4 percent in February compared with January.

Economists were encouraged by the stronger-than-expected gain in retail sales. Some said the increase means the economy may be growing faster in the January-March quarter than they had forecast.

"This all suggests that the hit to spending from the payroll tax cut and higher gasoline prices, which reduce the amount of cash available to spend on other items, hasn't been too bad," said Paul Dales, senior U.S. economist at Capital Economics. "The recent pickup in both employment and earnings growth bodes well for consumption growth later in the year, too."

Auto sales rose 1.1 percent after a 0.4 percent January increase. The February gain was the biggest since December. Sales at gas stations surged 5 percent, the biggest advance since a 6 percent rise in August.

Sales at general merchandise stores, a category that includes major department stores such as Macy's and big discount stores such as Wal-Mart and Target, rose 0.5 percent in February. But the department store category as a whole fell 1 percent.

The solid increase in retail sales showed that Americans kept spending despite a payroll tax increase that has lowered take-home pay this year for most workers. Someone earning $50,000 has about $1,000 less to spend in 2013. A household with two high-paid workers has up to $4,500 less.

Consumers may be able to absorb higher taxes if employers continue hiring and increasing wages.

The economy added 236,000 jobs in February, driving the unemployment rate down to 7.7 percent, its lowest level in more than four years. The gains signaled that companies are confident enough in the economy to intensify hiring even in the face of tax increases and government spending cuts.

Since November, employers have added an average of 205,000 jobs a month, up from 154,000 a month in the previous four months. The hiring spree has been fueled by steady improvement in housing, auto sales, manufacturing and corporate profits, along with record-low borrowing rates.

An improving in job market has also helped lift consumer confidence. And if it continues, it could provide a spark to growth after a dismal fourth quarter of 2012.

Many analysts believe the U.S. economy will grow a modest 2 percent this year. While job gains should help provide some momentum, growth will likely be held back by uncertainty about the federal budget, higher Social Security taxes and across-the-board government spending cuts that kicked in March 1.

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