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Retailers Want to Party Like It's 1999 -- But, of Course, It's Not

Major publicly traded retailers including Gap (GPS) and Saks (SKS) beat their forecasts recently and announced their biggest monthly sales growth since 1999. This led to widespread celebration and pronouncements that consumers have finally shaken off their anxiety and are ready to spend again.

Not so fast.

A few factors to consider:

  • Easter came early this year, so some March growth was essentially borrowed from April. The International Council of Shopping Centers estimated this switch accounted for roughly half of the 9 percent gain the industry saw. This Easter shift will come home to roost in April, when the ICSC estimates sales for the retail chains will fall in a range from flat to down 3 percent. So essentially, that gain all comes out in the wash.
  • Backing out Easter, sales rose around 4 percent. A year ago March, sales were down 4 percent. So in essence, like Alice in Wonderland's Red Queen, retailers have run as fast as they could for a year to stay in place. While it does represent a turnaround from the long negative sales plunge many retailers saw in 2008 and 2009, it's not exactly break-out-the-champagne level news.
  • Pent-up shopping demand from stormy February, when many shoppers stayed home, likely gave March a little boost as well.
  • Also making sales rise in March were gas prices, up 20 percent. This helped retailers with gas stations as Costco (COST) notch big sales gains, inflating sales figures without bringing any meaningful new shopping.
  • Many economists believe we may still see new shocks to consumers' systems, including another potential wave of mortgage failures. The thriftiness consumers acquired in the last two years is expected to persist for years to come, not magically vanish in a single month.
To sum up, it's way too early to celebrate the return of consumer spending. We'll need another month or two of sales data to see whether March sales were a fluke or the start of a positive consumer-spending trend.

Photo via Flickr user Pink Sherbet Photography

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