Retailers report best sales growth since March

NEW YORK - This summer, Americans were walking contradictions: They opened their wallets despite escalating fears about the slow economic recovery and surging gas prices.

A group of 18 retailers ranging from discounter Target to department-store chain Macy's reported August sales on Thursday that rose 6 percent - the industry's best performance since March - according to trade group International Council of Shopping Centers. At the same time, the government released numbers showing that Americans spent in July at the fastest clip in five months.

The news appears to show that what Americans say and do are two different things: The reports come two days after a private research firm said consumer confidence in August fell to its lowest level since November 2011 as Americans grew more concerned about the job market, business conditions and the overall economy.

"This is bit of a head scratcher," said Mark Vitner, a Wells Fargo Securities senior economist. "This runs counter to most of the other data related to the consumer."

But Roxane Battle Morrison, 50, said there's a logical explanation for the paradox. The Plymouth, Minn., resident said she is more worried about the economy, but she spent in August for one reason: she needed to help her 18-year-old son Jared get ready for college. So, Morrison, who produces videos for a nondenominational church, has stashed money away every month over the past year to save nearly $1,300 to buy him books, sheets, a futon bed, and other dorm room accessories.

"I was counting every nickel, looking at every price tag," she said.

That consumers like Morrison are spending is an encouraging sign, but that they are doing so hesitantly is something retailers and economists will be watching closely. Consumer spending accounts for 70 percent of economic activity. And while only a small group of merchants representing roughly 13 percent of the $2.4 trillion U.S. retail industry report monthly revenue figures, the August numbers still offer a glimpse at how Americans are spending.

The revenue gains in August, which only factor in stores that were open at least a year, are better than the 4- to 5-percent increase Wall Street predicted at the beginning of the month. And it was the industry's best performance since March, when stores collectively posted a gain of 6.8 percent. Except for a lull in June, stores have seen a healthy pace of 4 percent to nearly 7 percent growth since the beginning of the year. But analysts worry that the healthy spending won't last.

"It's certainly strong on the surface. But is it a sign of an improving economy and retailing environment? Or is it just more of the same: shoppers were driven by need," said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

Stores certainly benefited from people shopping for supplies and clothes for back-to-school, the second biggest-shopping period of the year. Many department and clothing stores like Macy's Inc. and Gap Inc. had better-than-expected results as trendy fashions like brightly colored jeans caught shoppers' attention.

Gap, which filled its stores with fashions in hot pinks, coral blues and aqua greens, posted a 9 percent gain, as back-to-school shoppers headed into its chains, particularly Old Navy. The results niftily beat analysts' expectations of a 5.4 percent rise.

Target also reported better-than-expected results. It had a 4.2 percent in August, better than the 3.1 percent increase that Wall Street expected. Business was strongest in food, and health and beauty items, but shoppers also bought clothing and home furnishings, the discounter said.

Macy's 5.1 percent gain also was better than the 3.6 percent forecast. The company said its men's apparel, home furnishings, beauty products, women's shoes and handbags continue to perform well.

"Our fall season is off to a healthy start," said Macy's CEO Terry J. Lundgren.

The strong sales reports give retailers some reason to be optimistic as they look toward the busy winter holiday shopping season, the biggest shopping period of the year, in November and December. That's because Americans were spending in August despite signs that they're becoming impatient with the slowly improving economy.

Indeed, the New York-based Conference Board's Consumer Confidence Index fell to 60.6 in August, down from a revised 65.4 in July. The index now stands at the lowest point since November 2011 when the reading was at 55.2. It's also still far below the 90-reading that indicates a healthy economy.

Several factors may have dampened consumers' moods in August. Gas prices, which had fell sharply from a peak of $3.94 in April, have begun rising again in the last few weeks. And the jobs and housing markets are showing only modest signs of improvement.

Home prices rose 0.5 percent in June from the same month last year, the first year-over-year increase since the summer of 2010, according to The Standard & Poor's/Case-Shiller home price index that was released Tuesday. And on the job market front, employers added 163,000 jobs in July, the most since February. But that's not enough to keep up with a rising population, and the unemployment rate increased to 8.3 percent from 8.2 percent in June.

Additionally, there are no signs that the job market will significantly improve anytime soon. The applications of people applying for unemployment benefits are a measure of the pace of layoffs. When they fall consistently below 375,000, it generally suggests that hiring is strong enough to lower the unemployment rate.

But the Labor Department said Thursday that the number of Americans seeking unemployment benefits was unchanged last week at a seasonally adjusted 374,000, which further suggests slow improvement. The four-week moving average, a less volatile measure, increased to 370,250.

Most economists say stronger growth is needed to produce enough jobs to lower unemployment - and make Americans feel better. The economy grew at an annual rate of 1.5 percent from April through June, down from 2 percent in the first quarter and 4.1 percent in the fourth quarter of 2011.

Despite their concerns about the snail's pace by which the economy is recovering, Americans are spending, which could boost an economy mired in subpar growth. The Commerce Department's report released Thursday showed consumer spending rose 0.4 percent in July from June, following no change in June and a slight decline in May. Income grew 0.3 percent, matching the gains from May and June.

"The results show that the consumer isn't dead," said Ken Perkins, president of Retail Metrics, a research firm. "Let's face it. There are a whole series of economic headwinds that they are fighting against."

AP Economics Writer Daniel Wagner in Washington contributed to this report.

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