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The American consumer bucked strong economic headwinds to help retail sales post the fastest growth in four years, a report is expected to show today (Thursday), boosting optimism that shoppers are overcoming concerns about unemployment and a slumping housing market.
Sales are expected to come in at the upper end of a range between 3-4% for the first five months of the retail fiscal year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers (ICSC) said in advance of its June report.
The biggest gain in retail sales since 2006 could be a signal that consumers are weathering last month's drop in consumer confidence and are not as concerned as analysts feared about the economic rebound.
Additionally, the report shows consumers have the staying power to keep buying through the rest of the year, according to ICSC analysts.
"The sales results have been uneven, which makes people worry about the recovery," Michael Niemira, the New York-based ICSC's chief economist told Bloomberg News. "If you look at the underlying growth rate, it suggests a relatively healthy, moderate pace of spending for the remainder of the year."
Consumer spending accounts for about 70% of U.S. economic activity, and the Conference Board's confidence index slumped to 52.9 in June from a revised 62.7 in May.
However, the sales growth was driven by a 4.2% increase at wholesale clubs, excluding gasoline sales, and an 8% jump at luxury chains, said the ICSC. Wealthy consumers tend to "come out of hibernation" first after a recession, and the clubs are luring value-seeking customers, Niemira said.
"Our customers in the U.S. are feeling more confident than a year ago, tied to improved levels of net worth," Tiffany & Co. (NYSE: TIF) Chief Financial Officer James Fernandez told an investors' conference June 30. "It's probably also true, and not surprising, that economic issues and stock-market volatility still affect consumer psychology."
Family Dollar Stores Inc.'s (NYSE: FDO) fiscal third-quarter earnings rose nearly 20%, as consumers continued looking for ways to stretch their money at the discount retailer. The company said momentum continued into June, with the month's same-store sales up an estimated 5.5%.
"As we look to the fourth quarter, we expect that many of the trends we saw in the third quarter will continue. However, the environment remains challenging for consumers, and customers continue to buy close to need," Howard R. Levine, chairman and chief executive officer told The Wall Street Journal.
Sales in 2010 will grow 3.5-4.5% at the more than 30 chains it tracks, after sales dropped 1.6% last year, the ICSC predicted in mid-May.
The ICSC's numbers don't tell the whole story because some retailers, including Wal-Mart Stores Inc. (NYSE: WMT), the world's largest, and New York-based Tiffany, don't post figures monthly, and the reports don't include all Internet purchases.
"These growth rates are the best we've seen in several years, after a multiyear slump," Craig Johnson, president of Customer Growth Partners LLC, a consulting firm in New Canaan, Connecticut, told Bloomberg in a July 2 telephone interview. "Some of the analysts get caught up in the month-to-month comparable sales, and they can be misleading."
The positive comparable-sales trend will continue, Bill Dreher, an analyst with Deutsche Bank AG (NYSE: DB), said on a July 1 conference call with clients. Retailers are well-positioned for profitability, with inventories and operating expenses tightly controlled, he said.
"Investors seem to have given up on the consumers," Dreher said. "Most of our retail operators are very bullish."
The biggest threat to retailers continues to be surging unemployment. Employers cut jobs in June for the first time this year, reflecting a drop in federal census workers and a smaller-than-forecast gain in the private sector, the Labor Department said July 2.
Unemployment was one reason Deborah L. Weinswig, a retail analyst at Citigroup Inc. (NYSE: C), lowered her stock price projections and earnings estimates for Macy's and other retailers.
"We are tempering our outlook for retail sales for the back half of 2010 based on mounting pressures against the consumer," the New York-based analyst wrote in a July 5 report. She also cited a lack of consumer credit, less home equity, and tax increases.
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