U.S. consumer spending up again in February

A string of surprisingly strong corporate earnings reports and economic data show that U.S. consumers have emerged from a long hibernation to start spending again on everything from new TVs and restaurant meals to spring outfits.

The Commerce Department on Friday reported that retail sales increased a seasonally-adjusted 0.3% in February from a month earlier, despite winter storms across a large swath of the country that analysts thought would keep shoppers home bound. Retail sales excluding the volatile auto sales increased 0.8%. Compared with a year ago, sales rose about 4%.

The strong sales gains, a continuation of recent trends, helped offset data showing that January business inventories were flat and consumer sentiment slipped last month. The Dow Jones Industrial Average rose nearly 13 points to 10,625 in 4 p.m. trading Friday. The market is up 197 points this year.

Cash registers are jingling more often at big retailers: Nordstrom Inc. and Target Corp. reported sales rose in February versus a year ago as consumers snapped up new spring merchandise.

Overall, sales at stores open at least a year, a closely watched indicator of retail health, rose 4% in February compared with a year ago, according to a Thomson Reuters index of 28 retailers.

"Once hesitant and even fearful, [shoppers] now are taking pride in their newfound financial discipline," Kathee Tesija, executive vice president of merchandising at Target Corp., said last month. "Their confidence is leading them to add a few more home and apparel items to their basket."

The Commerce Department report showed gains across a range of retailers. Clothing stores posted a 0.6% increase in the month, spending at restaurants and bars grew 0.9% while miscellaneous retailers, including department store chains, posted 2.5% gain over January.

The largest month-over-month gain was at electronics and appliance stores, where sales rose 3.7%. In part, the gain reflects spending on new televisions to watch the Super Bowl, analysts said.

Costco Wholesale Corp. reported February U.S. sales excluding gasoline rose 2%. Richard Galanti, Costco's chief financial officer, said last week that mid-ticket home goods, including small electrics, are "selling pretty darn well" and contributed to February's improved results.

Consumer purchases, which account for 70% of U.S. economic activity, are crucial to an economy still emerging from a deep recession. But while consumers are growing more willing to spend, economists expect the pressure of stagnant wages and mounds of debt to hold back the momentum in sales growth.

At the end of 2009, total household debt in the U.S. was 122.5% of annual disposable income, down from a peak 130.6% in 2008. For most of the 1990s, the ratio was under 90%.

That indebtedness has prompted some consumers to save more of their income to pay down debt, while forcing many others to default on loans.

Be it increased savings or tighter credit, the result is that many consumers are unable to keep spending at past levels.

But with heavy consumer debt loads and a 9.7% unemployment rate, some economists say February's big gains could disappear as quickly as February snows. "If you look at the weak income growth we're seeing and the balance sheet issues, I don't see where the fuel is to sustain this level of spending," says Joshua Shapiro, an economist with research firm MFR Inc.

Retailers have adapted to recession-induced frugality, restricting inventories and introducing lower cost products that are helping bring consumers back to the malls. Saks Inc., the luxury department store, reported sales at stores open at least a year rose 2% in February. Saks Chief Executive Stephen Sadove said some of the luxury department store's customers prefer the lower-priced items on its shelves.

"Within a brand like a Prada or a Gucci, [we are] shifting the buy to more of the entry price point," Mr. Sadove said. "Our customers don't want to trade down brands. They love their brands. But within the brands we are making some changes."

Consumer uneasiness was reflected in the University of Michigan/Reuters consumer-sentiment index, which was released Friday and declined to 72.5 in the first part of March from 73.6 in February. That is well above the recession low of 55.3 recorded in November 2008, but still weak by historical standards.

Lower shelf stocks may be encouraging shoppers to buy what they can, but are restraining business inventories. A separate Commerce Department report Friday showed that January business inventories were flat at $1.310 trillion.

Retail inventories fell 0.1% in January after rising 0.2% in the prior month.

Terry Lundgren, chief executive of Macy's Inc., said his store's inventories will remain low for some time. "How many red lipsticks do we need and for how long?" he said. "So if we have 14 weeks of supply in every store, can we live with six weeks?"