Retail Sales Are on the Rise

February retail sales climbed the fastest in five months. Even rising gas prices didn’t dampen demand for cars, clothing and other goods.  According to the Commerce Department, retail sales rose a seasonally adjusted 1.1 percent to $407.8 billion in February; January retail sales were revised upwards to show a 0.6 percent rise instead of the initially reported 0.4 percent.  If you don’t count cars, sales climbed 0.9 percent.  Economists queried by MarketWatch had anticipated a 1.2 percent gain for the headline index and a 0.7 percent advance for retail sales, not counting autos.

Consumers are “unfazed by higher gas prices,” said Jonathan Basile, an economist at Credit Suisse, who accurately forecast the increase in spending.  “This is a pleasant surprise on the overall picture for the economy.  For the Federal Reserve, it’s steady as she goes.  They will be encouraged, but there is still a long way to go.”

Gourmet-cookware chain Williams-Sonoma Inc., said demand improved at the start of the year following the holiday shopping season.  “Post holiday, we saw a progressively stronger retail environment,” said Laura Alber, the company’s chief executive officer, which reported record earnings for 2011.  Sales increased 1.6 percent at automobile dealers, reversing the previous month’s decline.  The results fell short of what the industry expected.  Cars in February sold at the fastest pace in four years, led by Chrysler and a surprise gain from General Motors. Light-vehicle sales accelerated 6.4 percent from January to a 15 million annual rate, the strongest since February 2008, according to Ward’s Automotive Group.

“There are a number of factors that are helping release this pent-up demand,” said Don Johnson, vice president of GM’s U.S. sales.  “They include stronger employment, good credit availability, and both of those are leading to improving consumer sentiment.”

Clothing store purchases rose 1.8 percent, the most since November 2010.  Furniture and general merchandise stores were the only categories to show a decrease in sales.  An improved employment and income picture are giving consumers the confidence to spend more. This is demonstrated by the fact that the Bloomberg Consumer Comfort Index rose to an almost four-year high in the week ended March 4.

Employers boosted payrolls more than forecast in February.

Dean Maki, chief U.S. economist at Barclays Capital Inc. and a former Fed researcher who specialized in consumer spending, projects Americans will boost purchases at a three percent yearly rate in the 2nd half of the year after a 2.5 percent gain in the first six months.

Federal Reserve policymakers are likely to retain their plan to keep interest rates low at least through late 2014.  Chairman Ben S. Bernanke said maintaining monetary stimulus is warranted even with employment gains and a lower jobless rate.  While there are “some positive developments in the labor market,” Bernanke said, “the pace of expansion has been uneven.” The rise in gas prices “is likely to push up inflation temporarily while reducing consumers’ purchasing power,” he said.

“We believe that the consumer is in better shape than recent downbeat commentary from Fed Chairman Bernanke,” said John Ryding and Conrad DeQuadros, analysts with RDQ Economics. Another Commerce Department report showed U.S. companies restocked at a faster rate in January, a sign that businesses expect stronger job growth to fuel more sales.  Business stockpiles rose 0.7 percent in January, while sales grew 0.4 percent.  For the remainder of 2012, JPMorgan Chase analysts forecast growth of 2.2 percent, an improvement from the 1.7 percent growth seen in 2011.

The rise in sales “signals that the improving economic fundamentals, particularly strong employment growth, are being translated into higher spending activity,” said Millan Mulraine, senior macro strategist at TD Securities. “This building momentum is especially encouraging for the recovery as it suggests that the self-reinforcing positive dynamics between jobs growth and spending activity could foster a more robust economic recovery in the coming months.”