News

Retail sales posted a better-than-expected increase in January, a welcome development that could mean stronger economic growth in coming months.

The Commerce Department said Friday that retail sales increased by 0.5 per cent last month, the best showing since November and better than the 0.3-per-cent increase economists had expected.

Excluding autos, sales posted a 0.6 per cent reading, also better than expected, with strength coming from a surge at general merchandise stores, a category that includes big national chains such as those owned by Wal-Mart Stores Inc.

Strength in consumer spending is important because it accounts for 70 per cent of economic activity. Economists are worried that the spending gains since last summer could falter given the tough times facing many U.S. households and that weakness could derail the fledgling recovery.

The overall economy grew at an annual rate of 5.7 per cent in the October-December period, the best showing in six years, but the concern is that this growth could slow considerably in coming months as the impact of the government's stimulus programs begins to fade and unemployment remains stubbornly high.

In its annual economic report to Congress, the Obama administration on Thursday forecast that the economy would average 95,900 new jobs per month this year, not enough to make a significant dent in an unemployment rate that now stands at 9.7 per cent. The administration's economists also forecast that Americans' personal savings would remain high as credit remains tight, another development likely to weigh on spending.

The 0.5-per-cent increase in retail sales in January followed a 0.1-per-cent decline in December, a figure that was revised up from an initial report that sales had fallen 0.3 per cent during the month. The latest reading was the best showing since sales had surged by 2 per cent in November.

Sales at auto dealerships were flat in January following a 0.1-per-cent rise in December. Activity last month was hurt by a series of safety recalls at Toyota.

The 0.6-per-cent increase in retail sales excluding autos followed a 0.2-per-cent drop in this category in December. The strength in January was led by a 1.5-per-cent jump in sales at general merchandise stores, the biggest one-month jump in this category since February, 2009. General merchandise includes major department stores and big national chains such as Wal-Mart and Target.

Sales at specialty clothing stores rose by 0.3 per cent while sales at gasoline stations were up 0.4 per cent.

Other stores experiencing increases in January were sporting goods stores, restaurants and bars and non-store retailers, the category that covers internet shopping.

Retailers seeing declines during the month included furniture stores, where sales fell by 1.4 per cent, and hardware stores, with a drop of 1.2 per cent.