U.S. retail sales surprise with January jump

U.S. consumers surprisingly spent more in January, putting a halt to six straight months of declines in retail sales.

Last month, retail sales rose by one per cent, the largest jump in 14 months.

The increase topped the expectations of Wall Street economists. According to Thomson Reuters, forecasters had been looking for a 0.8 per cent drop in retail activity last month.

The January increase followed a drop of three per cent in December, which marked the weakest holiday season dating back to at least 1969.

One economist said January's unexpected rise likely reflects consumers using gift cards and taking advantage of the deep discounting that retailers left on merchandise after the holiday shopping season.

"That said, the broader trend is still pointing south, as the three-month annualized pace of total retail sales was down 16.3 per cent in January, and excluding autos, it was down 18.1 per cent," said Charmaine Buskas, senior economics strategist at TD Securities.

Outlook still dour

Retail sales are closely watched because consumer spending accounts for roughly two-thirds of all economic activity in the United States.

The higher sales in January included stronger demand for automobiles and at general merchandise stores.

The January retail report wasn't enough to change the minds of economists who still foresee ongoing weakness in the U.S. economy.

"Notwithstanding today’s strong retail sales report, we expect the U.S. economy to continue contracting through the first half of 2009," said Josh Heller, an economist at Royal Bank.

"U.S. economic growth should, however, turn positive in the second half of this year, spurred by expansionary fiscal and monetary policy."

Canadian retail trade figures for December are due to be released by Statistics Canada on February 23.