Retailers report strong gains for August, delivering stores a decent back-to-school season

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NEW YORK — This summer, Americans were walking contradictions: They opened their wallets despite escalating fears about the slow economic recovery and surging gas prices.

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Americans kept spending in August despite fears about the economic recovery and gas prices. A group of retailers reported August sales that rose 6 percent.  FILE/ASSOCIATED PRESS
FILE/ASSOCIATED PRESS
Americans kept spending in August despite fears about the economic recovery and gas prices. A group of retailers reported August sales that rose 6 percent.

A group of 18 retailers ranging from discounter Target to department store chain Macy’s reported August sales Thursday that rose 6 percent – the industry’s best performance since March – according to trade group International Council of Shopping Centers.

At the same time, the government released numbers showing that Americans spent in July at the fastest clip in five months.

The news appears to show that what Americans say and do are two different things: The reports come two days after a private research firm said consumer confidence in August fell to its lowest level since November 2011.

Roxane Battle Mor­rison, 50, said there’s an explanation for the paradox. The Plymouth, Minn., resident said she is more worried about the economy, but she spent in August for one reason: she needed to help her 18-year-old son Jared get ready for college. So, Morrison, who produces videos for a nondenominational church, has stashed money away every month over the past year to save nearly $1,300 to buy him books, sheets, a futon bed, and other dorm room accessories.

That consumers are spending is an encouraging sign, but that they are doing so hesitantly is something retailers and economists will be watching closely.

Consumer spending accounts for 70 percent of economic activity. And while only a small group of merchants representing roughly 13 percent of the $2.4 trillion U.S. retail industry report monthly revenue figures, the August numbers still offer a glimpse at how Americans are spending.

The revenue gains in August, which only factor in stores that were open at least a year, are better than the 4 to 5 percent increase Wall Street predicted at the beginning of the month. And it was the industry’s best performance since March, when stores collectively posted a gain of 6.8 percent. Except for a lull in June, stores have seen a healthy pace of 4 percent to nearly 7 percent growth since the beginning of the year. But analysts worry that the healthy spending won’t last.

“It’s certainly strong on the surface. But is it a sign of an improving economy and retailing environment? Or is it just more of the same: shoppers were driven by need,” said Michael P. Niemira, the chief economist at the International Council of Shopping Centers.

Stores certainly benefited from people shopping for supplies and clothes for back-to-school, the second biggest-shopping period of the year. Many department and clothing stores such as Macy’s Inc. and Gap Inc. had better-than-expected results as trendy fashions like brightly colored jeans caught shoppers’ attention.

Gap, which filled its stores with fashions in hot pinks, coral blues and aqua greens, posted a 9 percent gain, as back-to-school shoppers headed into its chains, particularly Old Navy. The results niftily beat analysts’ expectations of a 5.4 percent rise.

Target also reported better-than-expected results. It had a 4.2 percent in August, better than the 3.1 percent increase that Wall Street expected. Business was strongest in food, and health and beauty items, but shoppers also bought clothing and home furnishings, the discounter said.

Macy’s 5.1 percent gain also was better than the 3.6 percent forecast. The company said its men’s apparel, home furnishings, beauty products, women’s shoes and handbags continue to perform well.

“Our fall season is off to a healthy start,” said Macy’s CEO Terry J. Lundgren.

The strong sales reports give retailers some reason to be optimistic as they look toward the busy winter holiday shopping season, the biggest shopping period of the year, in November and December. That’s because Americans were spending in August despite signs that they’re becoming impatient with the slowly improving economy.

Indeed, the New York-based Conference Board’s Consumer Confidence Index fell to 60.6 in August, down from a revised 65.4 in July. The index now stands at the lowest point since November 2011 when the reading was at 55.2. It’s also still far below the 90-reading that indicates a healthy economy.

Several factors may have dampened consumers’ moods in August. Gas prices, which had fell sharply from a peak of $3.94 in April, have begun rising again in the last few weeks. And the jobs and housing markets are showing only modest signs of improvement.

Home prices rose 0.5 percent in June from the same month last year, the first year-over-year increase since the summer of 2010, according to The Standard & Poor’s/Case-Shiller home price index that was released Tuesday. And on the job market front, employers added 163,000 jobs in July, the most since February. But that’s not enough to keep up with a rising population, and the unemployment rate increased to 8.3 percent from 8.2 percent in June.

Additionally, there are no signs that the job market will significantly improve anytime soon. The applications of people applying for unemployment benefits are a measure of the pace of layoffs. When they fall consistently below 375,000, it generally suggests that hiring is strong enough to lower the unemployment rate.

But the Labor Department said Thursday that the number of Americans seeking unemployment benefits was unchanged last week at a seasonally adjusted 374,000, which further suggests slow improvement. The four-week moving average, a less volatile measure, increased to 370,250.

Most economists say stronger growth is needed to produce enough jobs to lower unemployment — and make Americans feel better. The economy grew at an annual rate of 1.5 percent from April through June, down from 2 percent in the first quarter and 4.1 percent in the fourth quarter of 2011.

Despite their concerns about the snail’s pace by which the economy is recovering, Americans are spending, which could boost an economy mired in subpar growth. The Commerce Department’s report released Thursday showed consumer spending rose 0.4 percent in July from June, following no change in June and a slight decline in May. Income grew 0.3 percent, matching the gains from May and June.

“The results show that the consumer isn’t dead,” said Ken Perkins, the president of Retail Metrics, a research firm. “Let’s face it. There are a whole series of economic headwinds that they are fighting against.”

SPENDING RISES

WASHINGTON — Americans spent at the fastest pace in five months in July after earning a little more.

Consumer spending rose 0.4 percent in July from June, the Commerce Department said Thursday. That followed no change in June and a slight decline in May.

Income grew 0.3 percent, matching the gains from May and June. The savings rate after taxes dipped to 4.2 percent in July. That’s down slightly from 4.3 percent in June, the highest in a year.

– Associated Press

Consumer spending is closely watched because it accounts for 70 percent of economic activity.

Paul Dales, senior U.S. economist at Capital Economics, said that the rise in spending showed “there is still life in American consumers.” But he cautioned that higher gasoline prices and a decline in consumer confidence in August could dampen spending in coming months.

Hiring picked up in July and could see further modest gains in August. The number of Americans seeking unemployment benefits was unchanged last week at a seasonally adjusted 374,000, the Labor Department said in a separate report Thursday.

Applications are a measure of the pace of layoffs. They have risen slightly over the past three weeks but remain lower than they were in the spring, when hiring nearly stalled. When applications fall consistently below 375,000, it generally suggests that hiring is strong enough to lower the unemployment rate.

The government releases the August jobs report on Sept. 7. Analysts expect it to say the economy added 118,000 jobs in August and that the unemployment rate held at 8.3 percent, according to FactSet.

Economists say stronger growth is needed to create more jobs and lower unemployment.

Reports released Thursday from a range of retailers show Americans kept spending in August despite the increase in gas prices.

Costco Wholesale Corp.’s revenue from stores open at least a year climbed 6 percent. And Target Corp. reported a 4.2 percent increase in revenue at stores opened at least a year. The strong sales reports come two days after a private research firm said consumer confidence in August fell to its lowest level since November 2011.

The economy grew at a tepid annual rate of 1.7 percent in the April-June quarter, the government said Wednesday. Many economists expect growth will hover around 2 percent in the second half of the year. Growth at that level is far below what is needed to rapidly lower the unemployment rate.

Slow growth could prompt the Federal Reserve to take further steps to boost the economy when policymakers meet again on Sept. 12-13. In late July, Fed policymakers spoke with increased urgency about the need to provide more help for a weak U.S. economy.

Chairman Ben Bernanke could offer some clues Friday to what the Fed might announce when he speaks at a Fed conference in Jackson Hole, Wyo. Some suspect the Fed will wait to see how the economy performed in August, especially after July’s data was better than expected.

Inflation has been tame, which could provide the Fed more leeway to act.

Consumers paid no more their purchases in July than June, the report showed. Excluding food and energy, prices over the past year are up just 1.6 percent, well below the Federal Reserve’s 2 percent target for inflation.

Employers created 163,000 jobs in July, the most since February. Consumers stepped up retail spending, factories produced more goods and the housing recovery continued with increases in both new and previously occupied homes.

In its latest survey of business conditions around the country, the Federal Reserve reported Wednesday that the U.S. economy grew moderately in July and early August with stronger retail sales helping to offset weakness in manufacturing.

– Associated Press


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