Retail sales rise as consumers shrug off stock price drop

By Christopher S. Rugaber and Anne D'Innocenzio AP Business Writers WASHINGTON (AP) - U.S. retail sales rose modestly in January, evidence that Americans kept shopping despite sharp drops in stock prices. The Commerce Department said last Friday that retail sales increased a seasonally adjusted 0.2 percent last month, the same as in December. Excluding the effect of falling gas prices, sales rose 0.4 percent. Sales in December were revised higher from an initial estimate of a 0.1 percent drop. Steady hiring and early signs that employers are finally handing out higher wages means that Americans have more money to spend. A key question for the economy this year is whether consumer spending can keep growing and offset the impacts of stock market volatility and slowing growth overseas. "The markets may have decided that the U.S. is headed for recession, but obviously no one told U.S. consumers," Paul Ashworth said in a research note. Low prices caused a sharp fall in gas station sales, but "otherwise, sales were strong across the board," he added. Americans stepped up their purchases in January of autos, home supplies and groceries, and spent more online. They spent less at restaurants and bars, likely because of harsh snowstorms on the East Coast. The retail sales report provides the first indication each month of Americans' spending, which drives 70 percent of the economy. Yet retail sales account for only about one-third of all spending, with services such as haircuts and Internet access making up the other two-thirds. Gas prices averaged $1.70 a gallon nationwide last Thursday, according to AAA. That's down 27 cents in just the past month. Cheap gas is dragging down the overall retail sales figures, which include gas but don't account for price changes. Excluding the impact of cheap gas, retail sales rose 4.5 percent in January from 12 months earlier. That was the best year-over-pace since September. A key question for consumers this year will be how much they spend of the money left over from cheap gas, and how much they sock away in savings. Last year, they saved more than many economists expected, restraining growth. Last Wednesday, the National Retail Federation forecast above average sales this year, citing better hiring and wage increases, as well as lower gas prices. It forecasts retail sales will increase 3.1 percent in 2016, higher than its 10-year average of 2.7 percent. Still, that is a slowdown from its estimate last summer that retail sales would grow 3.5 percent in 2015. Its figures exclude autos, gas stations and restaurants. The government's figures show that a category mostly made up of online and catalog sales rose 1.6 percent in January, the most in nearly a year. They were up 8.7 percent from a year earlier. At the same time, department store sales plummeted 0.8 percent and have fallen 3.8 percent in the past year. The widening gap between online and traditional retailers will be on display next week with major stores like Wal-Mart, Target and J.C. Penney putting up their numbers from the fourth quarter, which includes the crucial holiday shopping period. This year, as has been the case for years now, shoppers increasingly migrated on line leading up to the holiday. With traffic at malls and department stores sluggish, Amazon.com two weeks ago, reported that its fourth-quarter revenue spiked 22 percent to almost $36 billion. Its profit doubled. Traditional retailers right now are in retrenchment mode. Wal-Mart, the world's largest retailer, is closing 269 stores, including 154 in the U.S. That's a fraction of its 5,000 stores, but still a rare event. Macy's Inc. is cutting 4,800 jobs and profit expectations as well. The ailing Sears Holdings Corp., which owns Kmart, said last week that it would accelerate store closures. "The actions are smart, but they may not be enough," said Walter Loeb, an independent retail consultant in New York. "It may be necessary to do more. We are overstored." ------- D'Innocenzio reported from New York City. Published: Tue, Feb 16, 2016