Consumers shook off snow, went shopping in January, stores say

NEW YORK -- Americans didn't stop splurging after the holidays.

They braved snowstorms and shopped in force in January, handing retailers like Costco, Victoria's Secret and Macy's surprisingly strong sales.

Along with two encouraging economic reports -- the biggest service sector expansion in five years and a plunge in weekly unemployment claims -- the sales figures offered more evidence Thursday that the economic recovery is picking up speed.

"It's one more piece of the economic puzzle that's falling in place," said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

Consumer spending has been improving for more than a year now, and this holiday season was the strongest for stores since 2006, before the Great Recession, according to the council. Sales figures for January showed that shoppers weren't spent out after Christmas.

The council's index of 32 stores showed a robust 4.8 percent increase for the month, well above the expected 1.5 to 2 percent. Analysts were worried that snowstorm after snowstorm, particularly in the Northeast, might have kept shoppers at home.

The figures cover Jan. 2 through Saturday for stores that have been open at least a year.

Consumer spending accounts for about 70 percent of U.S. economic activity, so how shoppers behave is an important measure of economic health. The next question is whether they will shell out full price for spring items, which are starting to show up in stores. There's no special occasion to spur spending after Valentine's Day until Easter, which this year falls on April 24, three weeks later than in 2010.

Rising gas prices and other household costs could squeeze lower- to middle-class shoppers. The next few months could be a "long spring thaw," said John Morris, an analysts for BMO Capital Markets.

Niemira said he believes a better job market could offset the higher prices, though. The next read on employment comes Friday, when the Labor Department reports on job gains or losses for January. The unemployment rate is 9.4 percent.

Other data out Thursday were encouraging. The service sector, which employs nine of every 10 American workers, expanded in January at the fastest pace in five years. The Institute for Supply Management, a private trade group, said its index of service-sector activity grew for the 14th month in a row, to the highest level since 2005.

The manufacturing and service sectors are growing at pre-recession rates, and economists expect that will translate into more hiring. Another positive sign: Fewer people applied for unemployment benefits, reversing a spike from the previous week largely caused by bad weather.

For retailers, January is the least important month of the year because they use it to clear out winter goods and make room for spring merchandise. Still, the strength brightened profit outlooks from Limited Brands, J.C. Penney and teen retailer Wet Seal Inc.

Some retailers said snow cut into spending. But shoppers got out more than expected, taking advantage of deals and replenishing their wardrobes with boots, coats and other winter items, said Ken Perkins, president of RetailMetrics LLC.

Costco reported a 9 percent gain in revenue at stores opened at least a year, and Limited Brands a stellar 24 percent increase. Business at Limited was helped by a twice-a-year sale at Victoria's Secret that moved to January from December, but the results continued a long streak of big gains.

Among department stores, Macy's posted a better-than-expected 2.6 percent gain.

Business at Target came in below expectations, particularly in the South and Northeast, both hit hard by winter storms. It was the second consecutive month of disappointing results. Target hopes bigger food sections and a discount for shoppers who pay with its store-branded credit or debit card will help its results this year.

------

AP Economics Writers Chris Rugaber and Martin Crutsinger in Washington contributed to this report.