By  on February 13, 2009

WASHINGTON — Retail sales showed some resilience in January, but economists expect more tough times ahead for merchants.

Sales at specialty stores in January increased 1.6 percent from December, as department store sales slipped 0.3 percent for the month, the U.S. Commerce Department reported Thursday.

Compared with a year ago, specialty store sales fell 10.3 percent to $17.2 billion and department stores declined 6 percent to $16.1 billion.

All retail and food service providers reported a seasonally adjusted increase of 1 percent in January versus December to $344.6 billion, beating expectations for the month. Monthly sales declined 3 percent in December. Compared to the previous year, however, overall sales were down 9.7 percent in January.

“It’s nice to see [retail sales] steady, nice to see it beat expectations, but as long as unemployment mounts we have to be braced for more bad news on consumer spending,” said John Lonski, chief economist at Moody’s Investor Services. “Maybe consumer spending has dropped so low it’s not surprising we’re beginning to form a bottom. However, the outlook for retail sales remains treacherous as long as unemployment soars.”

In a separate report released Thursday, the Department of Labor said new unemployment claims continued to be above 600,000 last week, indicating the employment picture is not improving.

“The best that we can hope for from this report is that retail sales are starting a bottoming process over the next several months, with alternating sequences of positive and negative reports,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight.

Despite the slight monthly uptick in sales, the year-over-year comparisons were still dismal, said Lonski, and overall retail sales “have incurred a drop of unprecedented depth” over the last 12 months falling an average of 0.9 percent each month. Month-to-month comparisons in 2009 should be easier, but the negative trend in year-to-year comparisons will continue for the first half of 2009, he said. Yearly comparisons should improve by the fourth quarter.

Charles McMillion, president and chief economist at MBG Information Services, said seasonal adjustments and lackluster sales in November and December distorted the January results.

“Today’s report should not have been unexpected and it is not good news for retailers, producers or for the broader economy,” McMillion said.

Rosalind Wells, chief economist at the National Retail Federation, said, “While 2009 got off to a surprising start, it’s going to be difficult for retailers to maintain this momentum. We expect the first half of the year to present challenges, while giving way to sustained growth in the fourth quarter.”

December sales were also revised down in this month’s report, Bethune said. The bump seen in January was “surprisingly robust for a number of key categories” including apparel, Internet purchases and general merchandise, and it was most likely fueled by bargain hunting, he said.

“For the department stores and apparel there was extreme discounting, which brought a lot of bargain shoppers into the equation,” said Richard Yamarone, director of economic research at Argus Research Corp.

That might have been good news for consumers, but it is terrible news for retailer profit margins and stock performance, he added.

Any long-term recovery in retail sales would depend on the fiscal stimulus package pending in Congress, the economists said. Components of the plan, like tax-reduction incentives, might encourage consumers to spend more than normal during the recession, they said, and could fuel an improvement in the second half of the year.

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