Retailers received a double dose of positive news from the federal government on Wednesday, as the Commerce Department reported stronger than anticipated January sales and President Bush signed an economic stimulus package.
This story first appeared in the February 14, 2008 issue of WWD. Subscribe Today.
January sales for all retail and food service providers increased a seasonally adjusted 0.3 percent after a 0.4 percent decline the previous month.
Apparel and accessories specialty stores saw sales advance 1.4 percent from December, driven in part by clearance of holiday merchandise, while the struggling department store sector registered a 1.1 percent decline. Compared with a year earlier, sales at apparel and accessories stores dipped 0.1 percent to $18.8 billion and department store sales fell 4.8 percent to $17.1 billion. The overall retail sales got a boost from a 2 percent rise at gasoline stations and higher car sales.
The sales figures, amid concerns about a recession, helped spur a stock market rally. The S&P Retail Index rose 0.3 percent to 406.69. The Dow Jones Industrial Average gained 1.5 percent to close at 12,552.24, while the broader S&P 500 jumped 1.4 percent to 1,367.21.
“The January numbers are indicative of the issues consumers are facing, including the housing slump, a sluggish employment sector and high energy prices,” said Rosalind Wells, chief economist at the National Retail Federation. “We expect to see marginal improvements in the second half of the year once consumers begin to receive their rebate checks.”
Despite the sales gain last month, Brian Bethune, U.S. economist at Global Insight, said the first quarter could still be a tough one with February sales reports tilting toward the weak side and consumer confidence declining.
“We still expect real consumption spending to track below 1 percent in the first quarter,” Bethune said in an analysis. “Real consumption spending is in the process of slowing down further. Combined with another very large negative contribution from housing investment, this will ultimately lead to a negative real [gross domestic product] growth rate in the first quarter.”
The economic stimulus package signed by Bush will put billions of dollars of tax rebates into the hands of consumers and businesses by late spring and early summer, a move that economists said will provide a short-term jolt to the economy.
“The bill I’m signing today is large enough to have an impact, amounting to $152 billion this year, or about 1 percent of GDP,” Bush said during the signing ceremony in the East Room of the White House. “The bill provides temporary tax incentives for businesses to make investments in their companies so that we can create new jobs this year and the bill provides individual tax relief in the form of tax rebates.”
The package will cost about $168 billion over two years. It provides enhanced write-off and depreciation provisions for businesses buying equipment and placing it into service this year. Small businesses can elect to write off the cost of qualified assets they purchase in the year when the assets are placed in service.
Businesses can now write off as much as $128,000 and the phaseout threshold is $510,000. The bill raises the write-off limit to $250,000 and the phaseout to $800,000 for 2008. It also allows a bonus depreciation for businesses of an additional 50 percent of the cost of an asset acquired and placed into service this year.
Rachelle Bernstein, vice president and tax counsel for the NRF, said the primary incentive in the package is the bonus depreciation. It includes leaseholder improvements for items such as fixtures and store shelving.
“That is very positive for those retailers that are still planning to make improvements this year,” Bernstein said.
The stimulus package will provide tax rebates this year, including $600 for individuals, $1,200 for couples and an additional $300 per child for families. The plan caps eligibility for the rebates at an income of $75,000 for individuals and $150,000 for couples.