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Resource: Featured Articles
Retail Sales Give Economy a Boost
Tuesday, February 14, 2012

First the winter chill came and along with it were the holidays, then love, and now profit is in the air. Although the holiday season had a mediocre turnout in sales, American consumers stepped their games up in January. 

In its latest report, the government found that retail sales were showing signs of a slowly improving economy.

While gas prices remain at an average high of $3.51 (up from 12 cents the previous month), retail sales still rose at a seasonably adjusted 0.4 percent last month according to the Department of Commerce.

Things like electronics, home and garden supplies, sporting goods were what many consumers were after. Including department and general merchandise stores, they also took to eating out at restaurant and bars.

On the opposite end of the spectrum, the report also indicated a drop in automobile sales which may mean that there were more dealer discounts being offered to attract buyers.

Last month's retail sales figures show improvement from December's, excpet for autos building materials and gasoline station sales. Core retail spending jumped 0.7 percent.

The government takes a firist look each month at consumer spending which is then compled into the retail sales report. Consumer spending plays a big part of the country's economic activity accounting for 70 percent of it. 

The data from the report sheds positive light as it suggests that hiring gains may have boosted confidence and is making people less hesitant to reach for their wallets. Companies have also been increasing the pace in restocking their inventories due to the higher sales. 

This speeding up in inventory growth was a key factor in the economy's expansion with it's best pace at the end of last year. However, some economists think that restocking will begin to slow down early this year.

They're concerned that since many consumers were relying on savings for their spending cash, their wages still weren't matching up to the pace of inflation. According to the retail sales report, consumers are managing to increase spending as they had last year even with the small gains in income.

Retails sales have risen about 21 percent since slumping in the recession. And they're almost 6 percent above their pre-recession high. The case might be different if auto sales hadn't dropped 1.1 percent but this decrease was unforeseen since they had a better outcome the month before. 

Granted, the figures from the government's auto sales and the automaker's numbers aren't always a perfect match given that dealers could have offered discounts to boost sales, low interest rates, and better loan availability.

One thing to smile about: consumers spent substantially more at general merchandise and department stores with sales there jumping 2 percent after a 0.7 percent drop in December. Along with them, restaurants and bars also saw a 0.6 percent sales jump.

Consumers are now taking on more debt after cutting back right after the recession hit. Consumer borrowing--credit cards, auto loans, and student loans--showed to be the biggest monthly gains in ten years during the holidays. These increases may prove that consumers are becoming more optimistic about the economy.

In recent months, hiring has also been picking up providing another reason as to why spending may be increasing. Just last month,employers added a net of 243,000 jobs. That's the fifth straight month of solid hiring and becoming the fifth straight monthly decline in unemployment with the rate falling to 8.3 percent.

With job creation on the rise and increased spending following it, the economy expanded at an annual rate of 2.8 percent in the final three months of last year. Consumer spending is always fluctuating but with the way things have been going until this point, many are looking forward (as opposed to dreading) the state of the economy in the near future for both unemployment and cost of living.