Price-conscious shoppers pushed retail sales to their highest level in more than a year last month, but the numbers didn't impress economists who are focused on rising oil prices and the struggling housing market.
"This report gives us some evidence that the downturn in consumer spending is likely to be relatively mild, which is good news," said Ross DeVol, director of regional economics at the Santa Monica-based Milken Institute. "It does not suggest that it will allow us to avoid a recession."
Although the federal tax rebates that have begun flowing to about 117 million American households could help fuel spending over the next few months, the strength, or weakness, of the second half of the year will probably be linked to how high oil prices climb and whether the housing market finds its bottom.
"Are we going to see $200 oil?" said Michael Niemira, chief economist for the International Council of Shopping Centers. Even if a barrel of oil doesn't go that high, "obviously, that's a risk to any kind of sustained improvement from this tax stimulus."
For the beleaguered retail industry, the numbers released Thursday were a relief. Sales at stores open a year or more rose 3.6% last month, the biggest gain since March 2007, according to the shopping center council's tally of 35 chains.
Consumers continued to gravitate to warehouse clubs and other places where they thought they might get bargains. Wal-Mart Stores Inc. helped boost the numbers with a better-than-expected 3.8% increase as sales at its Sam's Club chain jumped 9.5%. BJ's Wholesale Club and Costco Wholesale Corp. both sailed past expectations, advancing 17.8% and 8%, respectively.
In the month's biggest surprise, luxury retailer Saks Inc. -- with promotions and price mark-downs -- notched a nearly 24% gain, well above the 1.1% bump analysts expected.
Warmer weather, which makes spring fashions more appealing, helped spark some of the spending. The numbers also looked better because the month had one more shopping day than a year earlier, when sales fell 1.8%.
Teen retailers Buckle Inc. and Aeropostale Inc. logged the biggest gains, at 34% and 25%, respectively, while their rivals turned in mixed results.
Department stores collectively rose only 1.7%
Some California retailers' results came as a disappointment. San Francisco-based Gap Inc., parent of the Gap, Old Navy and Banana Republic chains, slid 6% instead of the 1.9% expected by analysts surveyed by Thomson. All its divisions saw sales fall or stay flat.
"Although most retailers beat estimates, it is evident that consumers are holding back on spending due to macroeconomic issues, especially due to the rising unemployment rate and the deteriorating credit markets," Thomson Reuters said in its report.
The rebate checks could help temporarily, even though many Americans have said that much of the money will be funneled into savings or used to pay down debt. Consumer spending accounts for about 70% of U.S. economic activity.
A report released Thursday by the Milken Institute said that consumer spending was still rising in nominal terms but that inflation had masked the fact that real purchases on durable goods had stopped growing. "Consumer spending is no longer an engine propelling the economy forward," it said.
The U.S. economy "tipped into a mild recession in the first half of 2008," according to the report, and DeVol said he anticipated that, by the third quarter, the housing market will have stabilized, paving the way for a turnaround.
"At that point, I think export growth and stronger consumers will be enough to turn the economy back on an upward growth path," he said. "We're going to see further declines in jobs, in my opinion, but they're going to be relatively modest."
Even a temporary surge in consumer spending could have far-reaching effects, Niemira said, strengthening the dollar and offsetting the upward pressure on oil prices. Inflation poses a major risk to the economy, he added, noting that non-fuel import prices have begun to rise. If core inflation -- a measure that excludes often-volatile energy and food costs -- continues to increase, financial markets will probably push up long-term interest rates, ultimately crimping consumers' ability to spend.
"Forget the housing problem; at that point it's an inflation story," Niemira said. "And inflation stories have been more detrimental to the economy. The only way to correct an inflation problem is a more severe downturn."
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Consumers picked up the pace of spending in April. Sales for the month rose 3.6%, according to one tally of 35 chains nationwide.
Year-over-year percentage change in sales at stores open at least a year
*--* COMPANY % change Saks +23.9% Costco +8.0 Ross +8.0 Pacific Sunwear +4.0 Wal-Mart +3.8 Target +3.1 J.C. Penney -1.7 Neiman Marcus -1.9 Wet Seal -1.9 Hot Topic -2.5 Nordstrom -3.8 Limited Brands -5.0 Gap -6.0 *--*
Sources: International Council of Shopping Centers, Thomson Reuters, Times research