Consumer Outlook Good: February Retail Sales Higher Than Expected

By Laura Heller, dealnews contributor

With the first quarter of 2013 drawing to a close, February's retail numbers brought a surprise to many sectors. While analysts expected to see a continued dip in sales across the board — what with higher payroll taxes, sequestration, and rising gas prices — February actually saw a surprising increase in retail sales.

Retail sales jumped 1.1% in February, and even without factoring in expenses for gas, the industry saw a 0.6% increase. And despite the marginal increase, economists are pleasantly surprised that Americans are spending more on consumer goods like food and clothes.

A Bleak Start to 2013

Consumer spending in the beginning of this year was sluggish. Not only were retailers coming out of a holiday season where consumer spending was a huge disappointment, but thanks in part to higher gas prices, gridlock in Congress from the sequestration, and higher payroll taxes, consumers on average have had less disposable income to start out 2013.

With tightened budgets, consumer confidence also declined in January, falling to its lowest level since November 2011. Even "everyday low prices" discount giant Walmart was not exempt from a rough start to the year. A leaked email from a Walmart executive declared February sales a "total disaster."

Why the Economic Uptick?

However February's better-than-predicted retail sales numbers are a welcomed surprise, attributable to growth in a number of markets. Modest gains in the jobs sector, coupled with a strengthening housing market are in part responsible for the rise in consumer spending. Speaking of the latter, not only was groundbreaking for new homes up and the price of existing home sales on the rise, but we've also anecdotally begun hearing stories of homes that sold in a day, above their asking prices! Some people may be hesitant to put a lot of stock in the housing market, thinking that this uptick may signify a return to the days of inflated house prices. Instead, is an indication that foreclosures, short sales, and a backlog of inventory have finally been sold through.

In addition to a more stable housing market, the average household debt burden fell in February — to its lowest amount since 1980! Coupled with the addition of 236,000 jobs in February (which drove the unemployment rate down to 7.7% and its lowest level in more than four years), more balanced household budgets means consumer spending may see an increase in the coming months, as consumers may begin spending more freely again.

Department Store and Electronics Sales Lag Behind

Yet despite the retail market's unexpected gains, notably attributable to rise in apparel sales, there are some sectors that aren't performing well. Department stores, namely, saw a 1% dip last month. Consumer electronics retailers, too, remain under pressure to keep customers from buying lower priced goods from Amazon and the like.

Does a 0.4% increase in retail sales mean this is full speed ahead for the economy? Probably not, but the rise in retail sales as a whole means that more consumers are spending, despite continued economic pressures. And while it's still early in the year, more optimistic spenders could in turn encourage retail expansion or innovation; new product lines, additional inventory, the quality of materials, and even promotions stand to be effected by an improving economy. For the time being at least, the retail industry can breathe a small sigh of relief.

Front page photo credit: ETF Trends
Photo credits: Dreamstime

Laura Heller is a freelance writer based in Chicago who specializes in mass market retail trends and consumer electronics industries. You can follow her on Twitter @lfheller.

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