Retail sales gains in January could boost growth

WASHINGTON - A modestly better-than-expected report on retail sales for January could suggest stronger economic growth in coming months. But this week's severe snowstorms will likely depress activity in February.

The 0.5 percent gain the Commerce Department reported Friday exceeded the 0.3 percent rise economists had expected. Strength came from a surge at general merchandise stores. These include big chains such as those owned by Walmart Stores Inc. Excluding autos, sales rose 0.6 percent.

Higher consumer spending is vital because it accounts for about 70 percent of economic activity. Economists caution, though, that the spending increases seen since summer could falter as the jobs crisis weighs on a fledgling recovery.

They noted a second report that showed consumer confidence slipped in early February. The Reuters/University of Michigan consumer sentiment index dipped to 73.7 for early February. That was down from 74.4 in January.

Some analysts said the unsettled global economy is eroding confidence that the United States can sustain a recovery from the worst recession in decades.

A debt crisis in Greece has plunged the euro, the currency used by 16 European nations, into the worst turmoil since it was launched 11 years ago. Financial markets fear a domino effect that could derail a global rebound.

Greek Prime Minister George Papandreou criticized the European Union on Friday for being too "timid" and slow in its support for Greece.

Concerns about the global economy were raised, too, by China's move to restrict lending for a second time in a month to cool a credit boom. The order for banks to increase reserves against bad loans renewed fears that a flood of lending in China might be fueling a bubble in stock and real estate prices.

But economists said the biggest threat to the U.S. economy remains the reluctance of U.S. consumers to keep spending.

"We expect that lingering high unemployment, weak income growth, low confidence, tight credit conditions and the continuing need to deleverage will constrain consumption growth for at least this year and possibly well beyond," said Paul Ashworth, senior U.S. economist at Capital Economics.

Adding to the caution was a separate Commerce report on businesses' inventories. It said companies reduced their stockpiles 0.2 percent in December. Economists had expected firms to boost their inventories 0.2 percent.

The dip in inventories shows businesses are reluctant to add to their stockpiles because they think consumer demand and the recovery will remain weak. Still, total business sales rose 0.9 percent in December. That followed an even stronger 2.4 percent gain in November.

The economy grew at an annual rate of 5.7 percent from October through December. That was the best showing in six years. But analysts warn that growth could slow in coming months as the benefits of government stimulus programs fade and unemployment remains near double digits.

Many economists cautioned that retail sales were likely to fall in February because of the impact of winter storms that have hit most of the country in the past week.

The storms are a particular problem for apparel stores with mostly lightweight items on their floors. Merchants ended December with relatively little excess supply. As a result, some stores moved up their deliveries of spring items, from jumpsuits to sandals. But those items aren't exactly what shoppers trudging through snow are thinking about now.

"Everything winter has sold out," said New York-based independent consultant Walter Loeb. He added that the "snow stopped sales."

On the other hand, supermarkets, drug stores and home improvement chains haven't likely been hurt as much. Consumers' rush to buy items like shovels and food in the hours before the storms likely offset slower business later this week when shoppers were snowed in, according to Joel Bines, director in the retail practice of AlixPartners.

For the retail industry overall, February is the second-least important month, after January. Retailers use these months to clear out winter items and bring in spring merchandise.

So even if the nation is hit hard by more snowstorms in the next few weeks, "it's not going to kill the spring selling season," said Brean Murray analyst Eric Beder.

But economists said the winter storms could skew the results of some economic reports in February, from retail sales to unemployment. That would make it even harder to divine a direction for a recovery that's proceeding in fits and starts.

"The storms likely will cast a thicker cloud over what remains a foggy economic outlook," said Bill Cheney, chief economist at John Hancock Financial Services in Boston. "February data is likely to look bad, and March is likely to snap back up sharply."

In its annual economic report to Congress, the Obama administration on Thursday forecast that the economy would average 95,900 new jobs per month this year. That wouldn't be enough to make much dent in an unemployment rate that's now 9.7 percent.

The administration's economists also forecast that Americans' personal savings would remain high as credit remains tight. That, too, will likely hold back spending.

The 0.5 percent increase in retail sales in January followed a 0.1 percent decline in December. The December figure was revised up from an initial report that sales fell 0.3 percent that month. In November, sales had surged 2 percent.

Sales at auto dealerships were flat in January after a 0.1 percent rise in December. Activity last month was hurt by safety recalls at Toyota. The 0.6 percent increase in retail sales excluding autos followed a 0.2 percent drop in this category in December.

The 1.5 percent jump in sales at general merchandise stores in January was the biggest one-month jump in this category since February 2009. Sales at specialty clothing stores rose 0.3 percent. And sales at gasoline stations gained 0.4 percent.

Other stores with sales increases in January were sporting goods stores, restaurants and bars and nonstore retailers - the category that covers Internet shopping.

Retailers that suffered declines included furniture stores, where sales fell by 1.4 percent. Sales at hardware stores dropped 1.2 percent.