Consumer spending up despite higher gas prices
By Ylan Q. Mui,
Americans might complain about higher gasoline prices, but new government data show that hasn’t stopped them from driving to the mall.
Retail sales jumped 1.1 percent in February, the biggest monthly increase since last fall, the Commerce Department reported Tuesday. Consumers went shopping for new cars, clothes, electronics and sporting goods despite spending 3.3 percent more at gas stations. The results boosted estimates of how fast the economy is growing, particularly on the heels of data showing a strengthening job market.
“Consumers are holding their own and have some extra cushion to withstand higher gasoline prices,” said Chris G. Christopher Jr., U.S. economist for IHS Global Insight.
The data show a new resilience among consumers, which could be a missing ingredient in the recovery, economists said. Consumer confidence, jobs and income have all rebounded, but overall growth has still been tepid. Experts have been waiting for consumers to open their wallets because they are the backbone of the economy, accounting for roughly two-thirds of gross domestic product.
Tuesday’s numbers suggest the growth in jobs is finally putting more money in Americans’ pockets and fueling more spending.
The results offer a counterpoint to polls showing public anger over rising prices at the pump. According to government data, the average price of a gallon of regular gasoline has jumped 16 percent since the beginning of the year, to $3.829. Generally, economists worry that higher fuel costs are leaving households with less money to spend on other items.
But so far at least, those fears have not materialized. Sales in February rose in almost every category of retailing. Automakers confirmed what they had said was a strong month with a 1.6 percent increase in sales. And analysts were particularly heartened by increases in discretionary spending in sectors such as clothing, which was up 1.8 percent from the previous month. Even long-struggling department stores showed a healthy 1.5 percent gain.
In addition, the Commerce Department revised its initial lackluster estimate for retail sales growth in January upward, to 0.6 percent.
The good news continued Tuesday when most of the nation’s biggest banks were given a clean bill of health from the Federal Reserve. That sent stocks soaring to heights not seen since 2007, before the financial crisis. The Dow Jones industrial average closed at 13,177.68, higher by nearly 218 points, or 1.7 percent. The S&P 500, a broader measure of stocks, jumped 1.8 percent. The Nasdaq rose 1.9 percent, to its best close since 2000.
Eventually, the hope is that a virtuous cycle will emerge similar to the one Brian Thomas is experiencing at his businesses, Nectar Skin Bar and Ipsa for Hair in Georgetown. Sales have been so strong that Thomas has been on a hiring spree. Ipsa brought two hairstylists on last week, and five new employees joined Nectar last month.
“Gas prices have not affected us, and I really don’t think they will,” he said. “I think people make a decision on what they can do without, and the skin is not one of them.”
Several factors have helped buffer Americans’ budgets. A big contributor — and also one of the most unpredictable — has been the relatively mild winter, analysts said. That has reduced many families’ heating costs and balanced out the rise in gasoline prices. It also has spurred jobs in construction and even inspired shoppers to work on their yards, helping to boost sales at building and garden stores by 1.4 percent in February.
At Bethesda Row, the sidewalks have been freshly power-washed and restaurants are planning to open their outdoor seating areas this weekend — two weeks earlier than normal. Deirdre Johnson, director of asset management for Federal Realty Investment Trust, which operates the center, said spring fashions and beauty products have been selling well and shoppers seem to be lingering longer.
“This really marks the beginning of our season,” Johnson said. “People can really enjoy this weather and really maximize it. . . . Let’s kick it off.”
Consumers have also weathered even higher fuel costs before. Last spring, gas prices climbed to nearly $4 a gallon before tapering off. A recent poll by Gallup found that Americans on average feel gas would need to reach $5.30 a gallon before they siginficantly cut back on spending.
“It’s all relative,” said Jack Kleinhenz, chief economist for the National Retail Federation. “We’ve crossed the threshold before.”
Still, even a solid increase in spending does not mean that the glass is half full. Macroeconomic Advisers upped its forecast for economic growth in the first quarter to just over 2 percent, but senior economist Ben Herzon said the more optimistic outlook still isn’t enough to maintain the country’s current pace of job creation.
“Were it not for the recent rise in gasoline prices, the consumer sector might look even better,” he said.
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