Sales at U.S. retailers rebounded in January, government data showed on Thursday, likely boosted by post-holiday discounts and providing a rare glimmer of hope for the recession-hit economy.
But the upward trend in sales could prove unsustainable as companies, reeling from a year-long recession continue to layoff workers in large numbers.
The Commerce Department said total retail sales rose 1 percent, advancing for the first time in seven months, after slumping by a revised 3 percent in December.
January's increase in retail sales was the biggest since November 2007 and beat economists' expectations for a 0.8 percent decline. But compared to January 2008, sales dived 9.7 percent.
"It is a bit of a puzzle because consumer fundamentals remain poor. Maybe retailers lured shoppers with aggressive discounting. Still it's a small piece of good news," said Zach Pandl, an economist at Nomura Securities International in New York.
The U.S. economy slipped into recession in December 2007, following the collapse of the housing market and the resulting global credit crisis.
Government data last week showed the economy shrank by annual rate of 3.8 percent in the fourth quarter, a figure that is likely to a slower pace, with more data showing a drop in drop in business and wholesale inventories in December.
U.S. stocks fell sharply on worries that government efforts to stabilize the economy and banks may not be enough. However, U.S. government debt prices pared gains on the unexpected rise in retail sales. The dollar and the yen rose as investors, worried about the weak global economy, sought safe havens.
Excluding motor vehicles and parts, retail sales were up 0.9 percent after a revised record 3.2 percent decline in December, the Commerce Department said. The January rise was the highest reading since May 2008.
Analysts had predicted sales, excluding motor vehicle and parts, to drop by 0.5 percent.
Gasoline sales jumped 2.6 percent, their biggest gain in seven months, after sliding 15.6 in December. Sales of building materials fell 3.2 percent after dropping 2.3 percent in December.
LIFELESS LABOR MARKET
Highlighting that the gains in retail sales were unlikely to be sustained, a separate report from the Labor Department showed the number of people staying on unemployment benefits after drawing an initial week of aid rose by 11,000 to a record 4.810 million in the last week of January.
"What that's telling us is the underlying trend is bad and seems to be getting worse. For job losses February could be worse than January," Nigel Gault, chief U.S. economist at Global Insight in Lexington, Massachusetts.
The Labor Department also said initial claims for state unemployment insurance benefits slipped 8,000 to a seasonally adjusted 623,000 last week, from an upwardly revised 631,000 the prior week.
Analysts polled by Reuters were expecting 610,000 new claims.
Escalating job losses and falling household wealth have forced consumers to become more frugal, hitting spending, which accounts for about two-thirds of U.S. economic activity.
This risks exacerbating the economy's downward spiral, which the Obama administration is hoping to break with a $789 billion package of tax cuts and spending moving through Congress.
Indicating that businesses are cutting back because of a slump in demand, a report from the Commerce Department showed U.S. business inventories fell 1.3 percent in December, the largest drop since October 2001, after dropping 1.1 percent in November.
That was worse than analysts' forecast a 0.9 percent decline. Business sales dropped 3.2 percent in December after plunging by a record 5.7 percent in November.
HOME PRICES POUNDED
The weak housing market, which sparked the U.S. recession, was still suffering late last year. Prices of existing single-family homes in the fourth quarter fell 12.4 percent from a year earlier, the National Association of Realtors said.
The NAR said distressed sales, or foreclosures and short sales, accounted for 45 percent of transactions in that quarter, dragging down the national median price of existing single-family homes to $180,100.
