Feb. retail sales see solid gain, ease concerns

Thanks to solid job creation, Americans spent more at retailers in February despite smaller paychecks. The surprisingly strong increase helped allay fears that higher Social Security taxes and gasoline prices might chill spending early this year.

Much of the increase in February retail sales compared with January reflected the higher gas prices. But even excluding the volatile categories of gas, autos and building supply stores, so-called core retail sales rose strongly.

The retail sales figures and a separate report that U.S. companies increased their restocking in January led Barclays to raise its estimate of growth in the first quarter by nearly a full percentage point — to an annual rate of 2.5 percent. That would be a leap from the scant 0.1 percent annual growth rate in the October-December quarter.

The Commerce Department said business stockpiles grew 1 percent in January, up from 0.3 percent growth in December. Total business sales fell 0.3 percent in January after a slight 0.1 percent rise in December.

Meanwhile, a survey of top U.S. chief executives showed they were more optimistic about the economy in the first three months of this year than they were at the end of 2012.

The CEOs surveyed by the Business Roundtable expected to see increased sales and to spend more on capital investment in the next six months, according to results released Wednesday.

But their expectations for hiring new employees remained flat compared with the final three months of last year. That was because of slow economic growth and lingering concerns about Washington’s inability to deal with fiscal issues in a comprehensive way, said Boeing Co. Chief Executive Jim McNerney, chairman of the Business Roundtable.

“We keep lurching from one crisis to another here in D.C., which does put a little bit of a damper on investment, particularly long-term investment,” McNerney said. “We are discouraged that it’s not moving faster.”

Economists were encouraged by the healthier-than-expected retail sales numbers from the Commerce Department on Wednesday.

Americans increased their overall retail spending 1.1 percent last month over January, the department said. It was the sharpest month-to-month increase in five months.

Core sales rose 0.4 percent. And the government revised upward its January figures to show that core sales rose 0.3 percent from December, better than its initial estimate of a 0.1 percent gain.

Over the past 12 months, retail sales have risen 4.6 percent — far more than consumer inflation, which has been less than 2 percent over that time.

The retail sales report is the government’s first look each month at consumer spending, which drives about 70 percent of economic activity.

“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 jumped 1.1 percent last month, the sharpest gain since December. Sales at gas stations surged 5 percent, the most since a 6 percent increase in August.

Sales at general merchandise stores, which include 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.

Still, reports from individual retailers suggest that companies that cater to lower- and middle-income shoppers are struggling more than others.

Bruce Efird, CEO of the discount chain Fred’s, said last week that delayed tax returns and the higher Social Security tax appeared to dampen his customers’ spending.

And Wal-Mart worried investors last month after a leaked email describing the first two weeks of February as a “total disaster.”

But Charles Holley, Wal-Mart’s chief financial officer, told investors Tuesday that sales at its namesake U.S. business have rebounded since then.

“I believe the slowdown had a lot to do with the delay of the tax refunds,” he told investors.

“Consumers went out and spent lots of money in February, led by a jump in vehicle purchases and gasoline sales,” said Joel Naroff, chief economist at Naroff Economic Advisors.

Naroff said he thinks retail spending, if it strengthens further, could increase economic growth from an annual rate of 2 percent or slightly higher in the January-March quarter with a 4.2 percent rate in the April-June quarter. That would likely be strong enough to drive down the unemployment rate, which is a still-high 7.7 percent.

But Naroff said his forecast is based on the assumption that Congress and the Obama administration will strike a deal to reverse the automatic government spending cuts that took effect March 1. If they don’t, he said, the economy would likely grow more slowly — at an annual rate of around 3 percent — in the April-June quarter.

Economists said the end of a two-year cut in the Social Security tax is being offset by stronger job growth, along with rising home and stock prices. Gains in home equity and stock holdings tend to make consumers feel wealthier and more willing to spend.