Sales at U.S. Retailers Advance by Most in Five Months

Sales at U.S. retailers climbed twice as much as forecast in February, showing improving job prospects are helping consumers and the economy overcome higher taxes and gasoline prices.

Purchases jumped 1.1 percent, exceeding all projections in a Bloomberg survey of economists and the biggest gain in five months, according to Commerce Department figures issued today in Washington. Another report showed companies boosted inventories in January to gear up for the pickup in demand.

Costco Wholesale Corp. and Ford Motor Co. are benefiting as employment gains bolster confidence and enable Americans to withstand the payroll tax increase that took effect in January. Economists at JPMorgan Chase & Co. and Deutsche Bank Securities Inc. raised first-quarter growth forecasts, indicating the economy had more momentum heading into the across-the-board government budget cuts that began this month.

“It’s comforting to see this,” said Raymond Stone, managing director of Stone & McCarthy Research Associates in Princeton, New Jersey. “The sequestration and the cutbacks will hurt and take some toll, but I think we are on the right track.” Stone had the highest estimate for retail sales and is the second-best forecaster over the past two years, according to data compiled by Bloomberg.

Stocks rose, sending the Dow Jones Industrial Average to its longest rally since 1996, as the increase in spending offset concern over dimming prospects in Europe. The Dow climbed less than 0.1 percent to 14,455.28 at the close in New York.

Europe’s Economy

Figures from the European Union’s statistics office in Luxembourg today showed euro-area industrial output fell more than economists forecast in January, adding to signs that the region’s recession extended into the first quarter.

The median forecast of 82 economists in the Bloomberg survey called for a 0.5 percent increase in February U.S. retail sales. Estimates ranged from a 0.6 percent decline to a 1 percent increase. The Commerce Department revised January data to show a 0.2 percent advance, up from an initially reported 0.1 percent increase.

Eight of 13 major categories showed increases last month, led by a 5 percent jump in receipts at service stations that probably reflected higher fuel costs. Last month saw the highest average gasoline price for any February since record keeping began in 2004, according to data from AAA, the largest U.S. auto group.

Spending Gains

Nonetheless, consumers still spent more at building materials outlets, auto dealers, general merchandise stores, and non-store retailers including Internet merchants.

Pent-up demand for motor vehicles reflecting an aging fleet and cheap borrowing drew customers to dealer lots. Cars and light trucks sold at a faster pace in February, pushing the annualized rate of sales to 15.3 million from 14.4 million a year ago, according to data from Ward’s Automotive Group issued earlier this month.

Deliveries at Ford Motor Co. surged 9.3 percent last month from a year earlier, the best February in six years. At General Motors Co., sales climbed 7.2 percent, the companies reported March 1.

Costco, the largest U.S. warehouse-club chain that yesterday reported a 39 percent gain in second-quarter profit, has worked to lure more shoppers to its annual memberships by lowering already-discounted prices. Sales during the period at stores open for more than a year climbed 5 percent, excluding changes in gas prices and foreign-currency exchange rates.

Growth Impact

Sales excluding autos, gasoline and building materials -- the figures used to calculate gross domestic product -- climbed 0.4 percent after a 0.3 percent increase in the previous month, today’s report showed.

The gain was one reason economists at JPMorgan in New York raised their forecast for first-quarter growth to a 2.5 percent annualized pace from a previous estimate of 1.5 percent.

“The consumer seems to be shrugging off the massive drag to income from higher tax bills and has continued spending as though nothing’s changed,” Michael Feroli, JPMorgan’s chief U.S. economist, said in a note.

Economists at Deutsche Bank Securities, led by Joe LaVorgna, raised their forecast for first-quarter GDP to a 3 percent pace from a 1.5 percent prior estimate.

Also contributing to the improving outlook is the rebuilding of depleted stockpiles. Inventories climbed by 1 percent in January, exceeding the 0.5 percent median forecast of economists surveyed by Bloomberg and the most since May 2011, another Commerce Department report showed.

Employment Gains

An improving job market may be one reason behind the pickup in spending. Retailers took on almost 24,000 new employees last month, contributing to a 236,000 increase in payrolls that exceeded the median forecast of economists surveyed, figures from the Labor Department showed last week. The unemployment rate unexpectedly dropped to a four-year low of 7.7 percent.

The gains in hiring defied concern that budget battles in Washington would hurt the economic expansion.

A fiscal pact passed by Congress on Jan. 1 gave a permanent tax break to 99 percent of Americans while allowing a payroll tax used to finance Social Security rise to 6.2 percent from 4.2 percent. A worker earning $50,000 a year is taking home about $83 less a month because of the higher levy.

Wrangling over the deal forced the Internal Revenue Service to delay accepting and processing 2012 tax returns, which is slowing refunds. Through March 8, taxpayers had received $159 billion in IRS refunds in this fiscal year, compared with $178.3 billion at the same point last year, according to Treasury Department data.

More Optimistic

Chief executives grew more optimistic about the U.S. economy last quarter for the first time in a year, projecting gains in sales and capital spending, another report today showed. The Business Roundtable said its index of business leaders’ outlooks advanced to 81 in the first quarter, the highest since the three months ended in June 2012, from 65.6 at the end of last year.

The gains in demand haven’t been universal. Some discount and department-store retailers including Wal-Mart Stores Inc. have struggled to boost sales as the tax increase and delayed tax returns take a toll. Wal-Mart, the world’s largest retailer, said Feb. 21 that same-store sales in the first quarter will be little changed. Target Corp., the second-largest U.S. discount chain, said February sales got off to a slow start.

“Given these new challenges facing an already-sluggish economy, we have a tempered view of the near-term sales environment,” Target Chief Executive Officer Gregg Steinhafel said on a Feb. 27 call with analysts. “While there are some encouraging signs in the housing markets, volatility and consumer confidence, the payroll tax increase and rise in the price of gas all present incremental headwinds.”