Accelerating economic headwinds eased on Thursday with strong reports about retail sales and jobs, Wall Street’s best day of the year and even a pause in the escalation of oil prices.
Retailers reporting comparable-store sales for February averaged increases of 4.2 percent, better than the 3.6 percent expected, according to Thomson Reuters, with men’s, women’s and children’s apparel and accessories generating some of the biggest gains among broadlines retailers ranging from Saks Inc., with an industry-leading comp gain of 15.3 percent, to Target Corp., up 1.8 percent with apparel up in the low- to midsingle digits.
While a strong sense of caution remains, particularly about the second half and impending increases in apparel prices brought on by higher costs for cotton and other commodities, there was cause for optimism on Thursday, and not just in the better-than-expected sales numbers.
New jobless claims last week fell to 368,000, their lowest level since May 2008, according to the Labor Department, fanning optimism about the employment report for February due today.
While gasoline prices continue to escalate at the pump, posing an immediate threat to the discretionary spending that drove February comp sales upward, the price of crude oil slipped back on Thursday from recent highs as Venezuela and the Arab League worked on proposals to end the standoff in Libya and its potential to disrupt global oil markets.
There were even indications that the price of cotton could stabilize after a long period of volatility. Cotton Incorporated economist Jon Devine said Thursday, in his organization’s first podcast, that preliminary estimates for the August crop season, while still early, are for “the largest cotton harvest ever recorded” worldwide, to 127.5 million bales, 6 million bales more than have ever been harvested.
Investors absorbed the upbeat news and sent the Dow Jones Industrial Average up 191.40 points, or 1.6 percent, to 12,258.20, for its best session since its 2.3 percent increase on Dec. 1. Retail stocks also locked in strong gains as the S&P Retail Index rose 5.87 points, or 1.2 percent, to 514.39, its best showing since a 1.5 percent leap on Feb. 8.
Some of the strongest retail stock showings of the day came from stores that exceeded analysts’ expectations. Hot Topic’s 1.4 percent decline was better than the 5 percent dip anticipated, and shares rose 5.5 percent to $5.57. Zumiez Inc.’s 12.8 percent spike was rewarded with a 5.5 percent increase in its shares, to $27.36, and Stein Mart Inc.’s 8.2 percent increase led to a 5.2 percent run-up in its shares, to $8.75.The Wet Seal Inc., up 7 percent for the month versus an estimate of a 1 percent decline, saw its shares rise 4.9 percent to $4.04.
Analysts were quick to point out that, while the February retail numbers were encouraging, they didn’t reflect the full effect of the recent rapid spike in gas prices, which this week lifted the national average to $3.39 a gallon.
Doug Hart, partner, Retail and Consumer Product Practice of financial services firm BDO USA, said the positive news for February is that “most chains reported a sales momentum that grew as the month went on. But one headwind to watch out for is gas prices, which hit consumers disproportionately. We saw that in 2007.
It didn’t kill retail sales during the period, but it put a damper on some sales.…Obviously, the rise in fuel costs will impact the mid- to lower end of the consumer base more than those at the high end.”
Laura Gurski, head of the retail practice at A.T. Kearney, observed, “We haven’t yet [seen] any inflationary increases in the numbers [since] gas prices spiked up recently.…Once consumers start to feel it in their pocketbooks, we’ll see a shift in the mix of retailers that perform well in the second half.”
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