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U.S. consumers increase spending

Written on February 15, 2012

Americans rebounded from a weak holiday season and stepped up spending on retail goods in January. The latest government report on retail sales pointed to a slowly improving economy.

Retail sales rose at a seasonally adjusted 0.4 percent last month, the Commerce Department said Tuesday.

Consumers spent more on electronics, home and garden supplies, sporting goods, at department and general merchandise stores and at restaurants and bars. They also paid higher prices for gasoline.

Spending on autos fell in January, the report showed, even though automakers had previously reported higher sales last month. That could mean that dealers offered more discounts to attract buyers.

The January retail sales figures were an improvement from December, which were downwardly revised to show a flat reading. And excluding autos, building materials and gasoline station sales, core retail spending jumped 0.7 percent.

The “retail sales data are better than they look, but they don’t suggest that consumption growth is about to set the economic recovery alight,” Paul Dales, an economist at Capital Economics, wrote in a note to clients.

The government’s retail sales report is its first look each month at consumer spending, which represents 70 percent of economic activity. The positive data suggest that hiring gains have boosted confidence and are encouraging more people to spend.

Higher retail sales have also prompted companies to increase the pace in which they restock their shelves.

Business stockpiles rose 0.4 percent in December, a separate Commerce report showed. Faster growth in inventories was a key reason the economy expanded at its best pace at the end of last year. Still, some economists expect the restocking to slow early this year.

Economists had expressed concerns that consumers might pull back on spending this year because their wages hadn’t kept pace with inflation. And many consumers relied on savings to make up the difference.

The retail sales report shows consumers are managing to increase spending at the same pace they did late last year, despite only small gains in pay.

“The good news is that the strong January gain establishes that the consumer trend is not folding,” said Pierre Ellis, an economist at Decision Economics.

Consumers are taking on more debt after cutting back immediately after the recession. Consumer borrowing, which includes credit cards, auto loans, and student loans, posted the biggest monthly gains in a decade in November and December. The increases could mean that consumers are more confident about the economy.

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