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Source: AAP, WSJ.com

Sales of clothing, shoes, books and CDs all saw strong growth, but economists warned this was unlikely to continue as unemployment climbs further.

Retail sales volumes gained 0.7% in January from the previous month, according to the Office for National Statistics (ONS). City analysts had expected a fall of 0.1%.

The ONS said there was evidence of widespread discounting in clothing and footwear, which posted a 6.1% jump in sales, the biggest rise since May. Sales at other stores, such as bookshops and music stores, shot up by 6%, the largest monthly increase since January 1988.

A survey from the British Retail Consortium had painted a similar picture earlier this month.

“The figures supported the other evidence we’ve had to so far that spending seemed to hold up fairly well in January,” said Vicky Redwood at Capital Economics. “We still don’t think that spending is quite as strong as these official figures suggest and that, looking ahead, any strength over the last month or so is probably going to turn out to be just a blip. Spending will fall as the year progresses.”

Tourism is also playing a part as a result of a weaker pound, said Martin Slaney at City spread-betting firm GFT, but he added: “With the added burden of the recent bad weather I do not see this strength being maintained in February.”

Over the past three months, retail sales have climbed by 1.5%, the fastest rate of growth since May, today’s figures showed.

Purchases made on the internet now represent 3.7% of total retail sales. That figure has been growing steadily, from 3.1% in January 2008 to 3.5% in December. Internet sales averaged £178m a week in January.

“With unemployment rising rapidly, wealth losses mounting through falling equity markets and house prices, and confidence at record lows, we doubt that this firm run of official retail sales numbers will continue,” said James Knightley at ING.

They blame negativity from the global financial crisis for a reluctance to spend on anything but the essentials.

“Consumers are being very particular,” Australian Retailers’ Association chief executive Richard Evans said, adding it was not a recent trend.

Soaring petrol prices and high interest rates in the first half of last year were a big turn-off for consumers as well.

And when the financial crisis caught up with Australia, consumers were already keeping their money in their pockets.

Evans said a big factor in consumer habits was the negative coverage about the financial crisis in October and November.

“If that wasn’t there, then consumers probably would have been back in the market by now in a significant way.”

Retailers had experienced the lack of confidence in recreation goods and furniture sales.

“The golf clubs will last another year, the couch will last another couple of months – that’s what we saw happening,” he said.

Restaurants had also fallen victim with consumers preferring to eat at home.

“You don’t go out and buy that $40 bottle of wine at the restaurant, you buy the same wine for $15 and buy some quality food at the supermarket and you go home and cook it.”

As a result consumers are “cashed up”.

“They’ll come back in a significant way and we’re starting to see some early signs of that.”

It was important to remember that unemployment was still low compared to the early 1990s, and Australia was coming from a very good base in terms of its balance sheet, Evans said.

But he was not yet sold on the government’s latest economic stimulus, despite nine million potential consumers receiving cash handouts of up to $950 each.

Evans said it was not clear how the government’s first stimulus package in December had been used by consumers.

A debit card system, rather than cash, was preferable because it would ensure the money was spent.

Source: AAP