WASHINGTON – 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.
Economists were encouraged by the healthier-than-expected numbers from the Commerce Department on Wednesday. Afterward, some revised their estimates of U.S. economic growth for the January-March quarter.
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.
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.
Barclays raised 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.
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.