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Retail sales post surprisingly strong gains in January

NEW YORK — Americans didn't stop splurging after the holidays.

They braved snowstorms and shopped in force in January, handing retailers including Costco, Victoria's Secret and Macy's surprisingly strong sales.

"It's one more piece of the economic puzzle that's falling in place," said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

Consumer spending has been improving for more than a year, and this holiday season was the strongest for stores since 2006, before the Great Recession, according to the council. Sales figures for January showed shoppers weren't spent out after Christmas.

The council's index of 32 stores showed a robust 4.8 percent increase for the month, well above the expected 1.5 to 2 percent. The figures cover Jan. 2 through Saturday for stores that have been open at least a year.

Consumer spending accounts for about 70 percent of U.S. economic activity, so how shoppers behave is an important measure of economic health. The next question is whether they will pay full price for spring items, which are starting to show up in stores.

Rising gas prices and other household costs could squeeze shoppers. The next few months could be a "long spring thaw," said John Morris, an analysts for BMO Capital Markets.

Niemira said he believes a better job market could offset the higher prices. The next read on employment comes today, when the Labor Department reports on job gains or losses for January. The unemployment rate is 9.4 percent.

For retailers, January is the least important month of the year because they use it to clear out winter goods and make room for spring merchandise. Still, the strength brightened profit outlooks from Limited Brands, J.C. Penney and teen retailer Wet Seal.

Costco reported a 9 percent gain in revenue at stores opened at least a year, and Limited Brands had a stellar 24 percent increase. Business at Limited was helped by a twice-a-year sale at Victoria's Secret that moved to January from December, but the results continued a long streak of big gains.

Among department stores, Macy's posted a better-than-expected 2.6 percent gain.

Business at Target came in below expectations, particularly in the South and Northeast, both hit hard by winter storms. It was the chain's second consecutive disappointing month.

More good news

Several other economic reports were released Thursday, most adding to the momentum of a growing recovery:

Jobless claims: The number of people applying for unemployment benefits plunged last week, reversing a spike from the previous week largely caused by harsh winter weather. Applications for benefits dropped by 42,000 to a seasonally adjusted 415,000 in the week ending Jan. 29, the Labor Department said.

Service sector: The Institute for Supply Management reported its service sector index grew in January at the fastest pace in five years. The private trade group's index covers a wide swath of employers, from retailers to health care companies to construction firms. Last month's reading of 59.4 was the highest since August 2005 and marked the 14th straight month of growth. Any reading above 50 indicates expansion.

Productivity: The work force was more efficient last year, with productivity rising at the fastest pace in eight years. Productivity, the amount of output per hour of work, rose a strong 3.6 percent in 2010 after a 3.5 percent gain in 2009, the Labor Department reported Thursday. Both years represented the best showing since 2002. Labor costs dropped 1.5 percent in 2010 after a 1.6 percent decline in 2009.

Factory orders: Orders to U.S. factories rose in December, pushed up by stronger demand from businesses for machinery and communications equipment. Factory orders increased 0.2 percent in December, the Commerce Department said Thursday. They have risen in five of the past six months.

Retail sales post surprisingly strong gains in January 02/03/11 [Last modified: Thursday, February 3, 2011 9:57pm]
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