Retail sales up for fourth straight month

Supermarket paying iStockphoto

(MoneyWatch) Americans spent at the fastest pace in five months in February, putting to rest fears that recent tax increases would slow the economy.

A report Wednesday from the Commerce Department showed retail and food service sales were up 1.1 percent last month to a seasonally adjusted $421.4 billion compared with January. This is the fourth straight monthly increase and largest since September. Sales were up 4.6 percent compared to February 2012. January's figures were also revised, up from 0.1 percent to 0.3 percent.

Analysts had been concerned that increased Social Security taxes, which took effect in January, would cause consumers to slow spending. Because of the increase people earning $50,000 will have about $1,000 less to spend in 2013.

And although about half the jump reflected higher gas prices, even subtracting them from the total still shows retail sales increasing a healthy 0.6 percent.

"This all suggests that the hit to spending from the payroll tax cut and higher gasoline prices, which reduce the amount of cash available to spend on other items, hasn't been too bad," said Paul Dales, senior U.S. economist for Capital Economics. "As such, there is a good chance that annualized real consumption growth in the first quarter will beat our current expectations of around 1.5 percent. 2.0 percent may be more plausible. What's more, the recent pick-up in both employment and earnings growth bodes well for consumption growth later in the year too."

The continuing improvement in the job market appears to be giving consumers more confidence that the economy will continue to improve.

The economy added 236,000 jobs in February, driving the unemployment rate down to 7.7 percent, its lowest level in more than four years. The gains signaled that companies are confident enough in the economy to intensify hiring even in the face of tax increases and government spending cuts.

Since November, employers have added an average of 205,000 jobs a month, up from 154,000 a month in the previous four months. The hiring spree has been fueled by steady improvement in housing, auto sales, manufacturing and corporate profits, along with record-low borrowing rates.

While there is still concern about the impact of federal budget cuts on the economy, analysts are guardedly hopeful that spending will continue to grow in March as people get their income tax refunds and gas prices continue to decline.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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