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Economic recovery seen in retail sales, manufacturing

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By V. Dion Haynes
Friday, March 5, 2010

The U.S. economy showed continued signs of recovery early this year, according to data released Thursday, with retail sales rising sharply and manufacturing posting its fifth straight monthly gain.

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Despite intense snowstorms that shuttered malls and left consumers in parts of the East and Midwest homebound for days, sales at stores open at least a year rose 3.7 percent in February to their highest levels since November 2007, according to the International Council of Shopping Centers. The trade group, which analyzed data from 29 chain stores, was expecting a 2 percent increase.

Consumer spending represents about 70 percent of the economy. Given forecasts that unemployment levels will remain high through most of this year, economists are counting on consumers who have jobs to help spur a sustained recovery.

Several major retailers, including Target and Nordstrom, say consumer behavior has changed over the past few months. Although shoppers aren't exactly brimming with confidence about the economy, they are now less skittish about spending more on items such as dresses, shoes, jewelry and spring clothing.

February's results would have been even higher without the blizzard, which the group said dragged down sales by one percentage point.

"It does appear there was some [make-up shopping] at other times of the month," said Michael P. Niemira, chief economist at the International Council of Shopping Centers. "But the biggest reason was that consumers were ready, willing and able to spend."

Niemira also said discounters and warehouse clubs benefited from the late Super Bowl, which shifted sales of party items into February.

Another sector that appears to be gearing up is manufacturing, which like retail experienced steep declines during the recession. The Commerce Department reported Thursday that new orders for factory goods rose 1.7 percent in January. Excluding aircraft and other transportation goods, orders rose 0.1 percent.

"Factory orders are gaining some momentum, but they're a third of the way [from where they were] before the throes of the recession," said Tim Quinlan, an economic analyst at Wells Fargo Securities, adding that orders are rising for construction machinery, photographic equipment, and computer and electronic products.

"We could be at the point where we'll see payroll grow in the manufacturing sector," Quinlan added.

But the strengthening retail and manufacturing numbers were overshadowed by data indicating further weakness in the housing market.

An index of pending home sales dropped 7.6 percent in January, to a seasonally adjusted 90.4, according to the National Association of Realtors. The drop came after an increase of 0.8 percent in December and despite an extension of incentives for home buyers by the Obama administration.

"Job losses are continuing, but we have had growth in compensation, so it's not surprising to see expanding consumer spending," said Abiel Reinhart, an economist at J.P. Morgan Chase. But "the recovery to date has not lifted people's confidence and income enough to make them want to rush into the housing market."

Economists are attributing the rise in retail sales to two factors -- the return of affluent consumers, who dramatically curtailed spending even though they didn't lose their jobs, and pent-up demand for clothing.

The International Council of Shopping Centers said luxury stores sales grew the most in February, 10.9 percent. At the same time, discount stores grew only 2.9 percent.

Those proportions were reflected at individual stores. For instance, sales at Nordstrom grew 10.3 percent, compared with 2.4 percent at Target.

"We had a strong month; sales of dresses, women's shoes and fashion jewelry were all up," said Colin Johnson, a spokesman for Nordstrom. Sales, he said, have been strong for the past few months -- up 2.2 percent in November, 7.4 percent in December and 14 percent in January.

"We hope we can keep the momentum going," Johnson added.

A survey released Thursday by Kantar Retail showed a growing willingness among shoppers to spend. About two-thirds said the recession had changed their spending habits somewhat or significantly, compared with three-quarters who said so in August 2008.

Moreover, fewer shoppers said they were curtailing their spending or trading down products or stores.

"They are doing the things they put off during the recession," said Frank Badillo, senior economist at Kantar.

Staff writer Ylan Q. Mui contributed to this report.


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