Retail Sales Rise but Unemployment Dampens Outlook

By Jason Simpkins
Managing Editor
Money Morning

Retail sales unexpectedly rose in January - halting a record six-month skid - but the upbeat report could easily be a one-month wonder, since U.S. unemployment continues to climb.

Sales at U.S. retailers rose 1% in January, the largest monthly increase since November 2007, and followed a 3% drop in December, the U.S. Commerce Department said today (Thursday).

But even with last month's gain, the picture remains grim: Compared to January 2008, retail sales plunged 9.7%.

Analysts still expect that retail sales will experience their first annual decline in 14 years, but tried to take solace in the fact that sales climbed, or at least slowed their descent.

"It is the sort of tonic that can sooth the market to an extent," Brian Dolan, chief currency strategist at told USA Today. "We've been keying on things not necessarily getting better but at least deteriorating at a slower rate. And this builds that case."

Another bit of silver lining could be found in last week's jobless claims. First-time claims fell by 8,000 to a seasonally adjusted 623,000 for the week ended Feb. 7. The overall job market still looks bleak, however, as the total number of jobless claims rose for the fourth consecutive week to 4.81 million.

The four-week moving average of claims, a less volatile measure, rose by 24,000 to 607,500.

"The labor market still looks pretty bad," Michael Feroli, an economist at JPMorgan Chase & Co. (JPM) told Bloomberg News. "There's still a lot of job destruction going on."

The U.S. economy shed 598,000 workers last month, and has lost 3.57 million jobs since the recession began in December 2007.

The nation's unemployment rate rose to 7.6% in January, its highest level since 1992, and an increase from 7.2% in December.

The government hopes to stem the rising tide of unemployment through the implementation of President Barack Obama's stimulus plan, which awaits congressional approval. The $789 billion plan aspires to create as many as 4 million jobs over the next two years.

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