At the start of the year, there was a lot of concern that consumer spending would take a hit as a result of higher payroll taxes, but what we have seen is the exact opposite.
February retail sales figures are out, and the results are fairly impressive. Consumers spent at the fastest rate in five months, and total sales were up 1.1% from the same period last year. Analysts had forecast a jump of 0.5% for the month.
While the total retail sales figure is important to note, most analysts opt to focus more on the “core retail” figures which do not take into account gasoline, autos, or home building supplies. Based on this metric, sales were up 0.4% during the month. Most encouraging is that February built on the 0.1% increase we saw in core sales in January.
For the U.S. economy to continue rebounding, consumers are going to have to keep spending. With consumer spending accounting for 70% of the American economy it is vital that consumer spending continue on its current pace.
A big reason consumers have increased spending despite higher taxes is the improving employment situation. Last month there were 236,000 new jobs added, which drove the nation's unemployment level to a four year low of 7.7%.
Auto sales were up 1.1% during the month, following a 0.4% increase in January. Gas stations saw a jump of 5% during the month, the biggest increase since August resulting from higher gasoline prices.
General merchandise stores, a category which includes big names such as Wal-Mart (WMT) and Macy's (M) saw a 0.5% increase during the month, but department store category as a whole saw a 1% dip during the month.
For now, all signs are pointing higher. Since November, employers have added 205,000 a month on average, and if that trend continues we should expect retail sales to remain strong.
While there is always the chance that consumer spending will hit some resistance in the months ahead, the fact that both January and February saw increases is a clear indication that higher taxes are not having the negative impact that economists feared.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.