Increase in retail sales hints at economic recovery

WASHINGTON — Retail sales posted a surprising increase in February as consumers refused to let snowstorms in much of the nation stop them from stepping up purchases for everything from clothes to appliances. The improvement provided hope that the recovery from the Great Recession is gaining momentum.

Some economists cautioned that spending increases will remain modest as long as wages stay flat and job creation weak. But others said the fourth gain in retail sales in five months meant consumers are starting to spend with more confidence.

“This is more than a one-month wonder,” said Stuart Hoffman, chief economist at PNC Financial in Pittsburgh. “This is telling us that consumers, who had been tightening their belts throughout the recession, have now loosened them a notch.”

For February, sales rose 0.3 percent, the Commerce Department said Friday. That surpassed expectations of a 0.2 percent decline.

The overall gain was held back by a 2 percent decline in auto sales, partly reflecting the recall problems at Toyota. Weakness in autos also caused a downward revision in January retail sales. They were reduced to an increase of just 0.1 percent, down from the 0.5 percent originally reported.

But outside of autos, sales rose a strong 0.8 percent in February. That was far better than the 0.1 percent rise economists had expected. And for January, excluding autos, sales gained 0.5 percent, just slightly below the 0.6 percent initial estimate.

Some analysts expressed concern about whether the spending gains can be sustained, given that unemployment remains high — 9.7 percent in February — and consumer confidence shaky. A separate report Friday showed that consumer confidence dipped to 72.5 in early March, down slightly from a February reading of 73.5, according to a Reuters-University of Michigan survey.

“Weak jobs growth, low wages growth and tight credit mean that any further acceleration in consumption growth is unlikely,” Paul Dales, an economist at Capital Economics, wrote in a research note.

Prospectswould improve if businesses, which have shed 8.4 million jobs since the recession began in December 2007, start rehiring laid-off workers. That would give households the incomes they need to support spending growth.

Economists said spending in both January and February likely gained support from higher tax refunds and tax credits paid by the government during the current tax filing season. Those increases reflect some of the tax relief included in the $787 billion economic stimulus package Congress passed last year.

Some analysts said the February retail sales report made them more confident that consumer spending — which accounts for 70 percent of total economic activity — will be enough to support moderate economic growth this year of around 3 percent.

“We needed the consumer to step up because that is the biggest part of the economy,” said Sal Guatieri, an economist at BMO Capital Markets. “This retail sales report should go a long way toward alleviating fears that we might slip back into a recession.”