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Low gas prices provide underwhelming boost as retail, auto sales fall

 
Published Feb. 13, 2015

WASHINGTON — U.S. retail sales fell sharply last month as gas prices plummeted and auto sales slowed. But excluding those volatile categories, Americans stepped up their spending a bit.

Retail sales dropped 0.8 percent in January, the Commerce Department said Thursday, after a 0.9 percent decline in December. The dollar value of gas station sales plunged 9.3 percent, the largest drop in six years. Auto dealer sales also fell for the second straight month after big gains in the fall.

Outside those categories, sales edged up 0.2 percent after a flat reading in December.

The modest gain suggests Americans are still cautious about spending their windfall from lower gas prices, which economists expect will save the typical family $750 this year. Cheaper gas and strong hiring have sent consumer confidence to seven-year highs, a sign that spending should pick up soon.

Economists were disappointed by the weak showing, but most expect that consumers will eventually spend much of the extra cash left over from lower prices at the pump. (Gas prices have crept up recently, but they are still far below the average for the past several years.)

"With lower gasoline prices leaving households with more to spend . . . the labor market on fire and consumer confidence back at its pre-recession level, we had hoped to see a much stronger performance," Paul Ashworth, an economist at Capital Economics, wrote in a note to clients.

Ashworth now expects growth in the first three months of this year to be 2.5 to 3 percent, below his earlier estimate of at least 3 percent.

Still, "The conditions are in place for a period of very strong consumption growth," he said.

The National Retail Federation, the nation's largest retail industry group, expects retail sales to be up 4.1 percent this year. That would be up from the 3.5 percent increase last year and mark the biggest percentage gain since 2011, when retail sales rose 5.1 percent. The figures exclude business from autos, gas stations and restaurants, and include online sales.

Jack Kleinhenz, the NRF's chief economist, said heavy discounting will continue this year, given the competitive environment, and, he believes, it has made sales look less strong in January.

Adjusting for price changes, "demand has been stronger," he said.

Scott Hoyt, an economist at Moody's Analytics, said consumers are frequently slow to spend "found money," such as tax rebates or savings from lower gas prices. It can take six to 12 months for the spending to fully materialize, he said.

One reason is that shoppers might not be sure that the low prices will last. A survey of consumers by the Conference Board that was released Wednesday found that 75 percent of respondents expect gas prices will rise by the summer. That's different from many analysts and government forecasts, which foresee gas staying below $3 a gallon for the rest of this year.

One area that stood out in January was restaurants and bars, whose sales climbed 11.3 percent in January from a year earlier, the biggest 12-month gain in the past 33 years.

Consumers did spend more last month on electronics and building materials, and at general merchandise stores. But spending at clothing, grocery and furniture stores all fell.