Retail sales rise unexpectedly in January, reversing 6-month decline

NEW YORK -- Americans bought a sweater or two, ate out a little more, purchased some gadgets and turned to the Internet in search of bargains in January. These small indulgences nevertheless provided some relief to suffering stores, boosting retail sales by 1 percent.

The unexpected increase from December, reported by the Commerce Department on Thursday, reversed a six-month decline and marked the biggest increase in 14 months.

However, with nearly 5 million Americans still drawing unemployment benefits late last month and the specter of more layoffs to come, economists believe the reversal is unlikely to last. In a sign of how fearful businesses are, they slashed inventories in December by the biggest amount in seven years -- potentially triggering further cutbacks in production and more layoffs.

Clearly, however, any lift in spending is worth watching.

"Consumers began to treat themselves a little better," said Joel Naroff, president and chief economist at Naroff Economic Advisors Inc.

Whether this is a sign of a thaw in consumer spending or a blip, he said he won't know for another few months. But he said consumers may be moving from "doing nothing to doing a little something."

"I am not saying that people are going to love the recession, but people are going to learn to live with it," Naroff said.

The January figures were far better than the 0.8 percent decline that economists surveyed by Thomson Reuters expected.

"This is a big surprise, though the net rise in sales is less impressive than it looks because [December and November] were revised down by 0.3 percent each," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a research note. "The headline relief today is welcome but it is unlikely to last."

Retail sales had plunged a revised 3 percent in December, which marked the weakest holiday season in several decades. Last week, the retail industry reported a 1.6 percent decline in same-store sales in January compared with a year earlier, according to the International Council of Shopping Centers-Goldman Sachs index. But that figure wasn't as bad as the 2 to 3 percent drop that the group expected.

The Commerce Department report showed strong increases in sales of automobiles and in general merchandise stores -- the "big box" outlets -- though sales by department stores, carrying fewer varieties of items, posted a small decline.

Wal-Mart Stores Inc., the world's largest retailer, is one discounter that has benefited from consumers' focus on necessities like groceries and on bargains for other items. Still, even some categories of more discretionary items enjoyed increases. Clothing and accessories stores posted a 1.6 percent gain, while electronics and appliances rose 2.6 percent.

But shoppers still cut back on furniture and building materials and garden supplies. Furniture and home furnishings sales fell 1.3 percent, while building material sales dropped 3.2 percent.

Sales at gas stations jumped 2.6 percent in January -- the biggest increase since June, while sales of autos and parts rose 1.6 percent.

Michael P. Niemira, the ICSC's chief economist, said that rising gas prices didn't boost the figures much. Excluding gas sales, retail sales still rose 0.9 percent. So he believes that the little post-holiday shopping that people did was magnified by a horrendous December.

Nonstore retailers, such as Internet and mail-order shopping, rose 2.7 percent in January, while sales of food and beverages rose 2.1 percent. Health and personal care stores registered flat sales.

Despite the overall leap last month, retail sales were down 9.7 percent from January 2008, amid the ravages of the recession, thousands of job losses and falling home prices.

The Labor Department report Thursday showed just how weak the job market remains. While the number of initial jobless claims dropped to a seasonally adjusted 623,000 from a revised figure of 631,000 the previous week, the latest tally still higher than expected.

And in a sign that laid-off employees are having difficulty finding new work, the number of people claiming benefits for more than one week rose to 4.81 million from 4.78 million, the highest total since records began in 1967. That data lag new claims figures by a week.

An additional 1.5 million people are receiving unemployment benefits under an extended program approved last year, bringing the total number of recipients to 6.3 million.

Against this backdrop, many of the nation's retailers are slashing jobs. Macy's Inc. said last week it will eliminate 7,000 jobs, or almost 4 percent of its work force, while Bon-Ton Stores Inc. and apparel maker Liz Claiborne Inc. also disclosed major job cuts.

Even Wal-Mart said Tuesday it will cut 700 to 800 jobs at its Arkansas headquarters as it builds fewer new stores this year and makes other operational changes. The cuts are coming in Wal-Mart's real estate, apparel, and health and wellness departments.

Retailers are also slashing inventories, forcing suppliers to cut back on production. The Commerce Department also said Thursday that inventories fell 1.3 percent in December, far worse than the 0.9 percent decline expected. It was the largest cut since October 2001.