WASHINGTON — Thanks to solid job creation, Americans spent more at retailers in February despite smaller paychecks. The surprisingly strong increase helped allay fears that higher Social Security taxes and gasoline prices might chill spending early this year.
Much of the increase in February retail sales compared with January reflected the higher gas prices. But even excluding the volatile categories of gas, autos and building supply stores, so-called core retail sales rose strongly.
Americans increased their overall retail spending 1.1 percent last month over January, the department said. It was the sharpest month-to-month increase in five months. Core sales rose 0.4 percent.
Over the past 12 months, retail sales have risen 4.6 percent — far more than consumer inflation, which has been less than 2 percent over that time.
"This all suggests that the hit to spending from the payroll tax cut and higher gasoline prices, which reduce the amount of cash available to spend on other items, hasn't been too bad," said Paul Dales, senior U.S. economist at Capital Economics. "The recent pickup in both employment and earnings growth bodes well for consumption growth later in the year, too."
Auto sales jumped 1.1 percent last month, the sharpest gain since December. Sales at gas stations surged 5 percent, the most since a 6 percent increase in August.
Sales at general merchandise stores, which include major department stores such as Macy's and big discount stores such as Wal-Mart and Target, rose 0.5 percent in February. But the department store category as a whole fell 1 percent.
Joel Naroff, chief economist at Naroff Economic Advisors, said he thinks retail spending, if it strengthens further, could increase economic growth from an annual rate of 2 percent or slightly higher in the January-March quarter to a 4.2 percent rate in the April-June quarter. That would likely be strong enough to drive down the unemployment rate, which is a still-high 7.7 percent.
But Naroff said his forecast is based on the assumption that Congress and the Obama administration will strike a deal to reverse the automatic government spending cuts that took effect March 1. If they don't, he said the economy would likely grow more slowly — at an annual rate of about 3 percent — in the April-June quarter.