Consumers were more frugal than indulgent last month, as the government delivered the first wave of tax rebate checks in May.
While fewer shoppers than expected were putting the money into savings accounts, they also weren’t splurging. A lot of the extra cash appears to be going to necessities such as food, baby clothes and unexpected expenses, according to retailers and economists evaluating May retail sales released Thursday.
“The tax rebates will help shoppers get through the summer,” said Frank Badillo, an economist at TNS Retail Forward, a market research firm in Columbus, Ohio. “It came in time to help shoppers deal with the high prices of food and fuel. When you strip out the effect of tax rebates over coming months, we see shoppers tightening their belts further.”
Sales at major chain stores open at least a year rose 3 percent in May, better than the 1 percent forecast and outpacing the average 2 percent for the fiscal year to date, according to the International Council of Shopping Centers.
But that unexpected bump was helped by discounters and wholesale clubs, which generally fared well.
Wal-Mart Stores Inc., the world’s largest retailer, lifted the entire group, posting a 3.9 percent gain, better than the company had forecast.
The strongest gains came from sales of groceries, health and wellness items, and entertainment. Remarkably, the home area posted its first same-store sales gain in more than two years, an indication that people are staying home to entertain.
The Bentonville, Ark.-based company cashed $350 million in rebate checks for free in its stores and enticed cash-strapped shoppers with discounts on everything from cereal to medicine to flat-screen TVs.
Although the company said it didn’t know how much of that rebate money was spent in its stores, U.S. CEO Eduardo Castro-Wright said the company believes “we’re seeing some benefits from the stimulus checks.”
Costco Wholesale Corp. saw a 9 percent increase, while BJ’s Wholesale Club Inc. said sales surged 13.4 percent, both helped by food sales.
Meanwhile, same-store sales at Target Corp., Gap Inc., Limited Brands Inc. and Kohl’s Corp. fell. Teen retailers American Eagle Outfitters Inc. and Pacific Sunwear of California Inc. also posted declines. Dillard’s Inc. and Bon-Ton Stores Inc., owner of Carson Pirie Scott, also reported sales decreases.
Nordstrom Inc. said its sales rose 10.9 percent, beating estimates for a 9.1 percent jump, after an earlier start date for its half-yearly sale for women and kids. Saks Inc.’s sales retreated 8.7 percent after it moved a spring clearance event into April.
Sears Holdings Corp. and Macy’s Inc., the two biggest U.S. department-store chains, don’t report monthly same-store sales. Comparable-store sales exclude locations that have recently opened or closed and are considered a key metric of a retailer’s health.
Checks’ effects modest
Still, analysts warned not to put too much stock in the stimulus checks jump-starting the economy.
Among the roughly three dozen retailers reporting May numbers, few outside of Wal-Mart cited the stimulus checks as helping sales. J.C. Penney Co., which reported a 4.4 percent same-store sales decline, was one of the exceptions, but even it was reticent to put too much emphasis on the government gifts.
“While the stimulus checks may provide some boost to consumers’ discretionary spending over the next few months, we expect any such benefits will be modest and temporary,” said Kristin Hays, an investor relations official at the Texas-based moderate department store chain.
Economist Scott Hoyt expects the tax rebates, as they arrive in mailboxes into July, will provide a bridge to the crucial back-to-school and holiday seasons, which make up a big portion of retailer’s annual sales and profits.
“Even if consumers use it mostly to fill their gas tanks and pantries, the economy would be worse off if they didn’t have it,” said Hoyt, who follows consumer economics at Moody’s Economy.com. “The question is, is it helping enough to get the economy growing again? For that to happen, you need people to spend on extra stuff.”
New stimulus ahead?
Hoyt predicts another economic stimulus is waiting in the wings and will appear this fall as the presidential election approaches, this time skipping the checks in favor of extending unemployment benefits or boosting food stamps or sending more aid to state and local governments.
The federal government approved a plan in February to stimulate the economy by distributing $106 billion to 130 million households. About $50 billion was distributed as of May 30, according to the U.S. Treasury Department.
Consumers have curbed spending in the face of the worst housing slump in at least 25 years and concern about their jobs, which has sent consumer confidence to a 16-year low. And the U.S. average price of a gallon of unleaded gasoline reached a record $3.99 earlier this week, according to AAA motor club, up 27 percent from a year ago.
“Many of our customers need to live from paycheck to paycheck,” Wal-Mart Chief Financial Officer Thomas Schoewe said Thursday. “The amount they’re spending on basics is a big portion of the total basket.”
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smjones@tribune.com
Graphic: Sticking to the plan (mostly)
HOW AMERICANS SPENT THEIR TAX REBATES
Percent of consumers surveyed %% % who planned % who actually Expenditure to spend (February) spent (May) %% %% Bill payments 37% 38% Savings account 34 29 Daily expenses (groceries, gas, etc.) 26 28 Special purchase (vacation, HDTV) 20 14 Paid down mortgage 4 14 Charitable donation 3 3 Other 8 2 %% SOURCE: TNS Retail Forward monthly survey of 4,000 household shoppers
TRIBUNE GRAPHIC
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