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Retail Sales Jump 1.1%, But Details Signal Caution

Retail sales growth more than doubled February expectations, but the uneven gains showed consumers are still feeling the effects of payroll tax hikes and higher gas prices.

Sales rose 1.1% from January, the Commerce Department said Wednesday. Analysts predicted a 0.5% increase. January was revised to a 0.2% advance from an initial reading of a 0.1% uptick.

The Nasdaq and S&P 500 rose slightly in the stock market Wednesday.

Much of the latest retail growth was due to higher fuel prices lifting gas station sales 5%, the biggest spike in six months. Auto sales climbed 1.1%, as did sales at building supply stores like Home Depot (HD).

Still, a measure of core sales that excludes gas, autos and building materials gained nearly 0.4%, an improvement over January's 0.2% growth.

But declines elsewhere suggested consumers are holding back on some discretionary spending. Restaurants and bars saw a 0.7% drop in business, following a 0.6% slide in January.

Furniture sales declined 1.6%, department stores were off 1%, and electronics retailers dipped 0.2%. Those retreats came despite a recovery in the housing market that tends to lift demand for household goods.

Solid building material sales may have been helped by ongoing reconstruction efforts following Superstorm Sandy as well as recent severe winter weather, said Ryan Sweet, a senior economist at Moody's Analytics.

Consumers are hanging in there, but he sees additional trouble ahead as the effects of the tax hikes become more apparent. The better-than-expected results early this year may be due in part to income windfalls from special dividends rushed out to shareholders ahead of higher tax rates.

That tail wind will fade quickly. Meantime, the sequester of automatic federal spending cuts will start to lighten wallets as economic growth, job gains and wages slow down.

For the next few months, retail sales will weaken, Sweet predicted. But over the course of 2013, the housing rebound should eventually boost electronics, furniture and building materials.

"Consumers are going to bend but are not going to break," he said.

The shift to online shopping continues to support sales there, often at the expense of brick-and-mortar stores. Nonstore retailers like Amazon (AMZN) climbed 1.6% last month, and the category is up 15.7% from a year earlier.

Grocery stores rang up 0.7% more sales in February. But even warehouse club giant Costco Wholesale (COST) reported slowing sales growth that was only offset by membership fees.

Sporting goods stores fell 1%. Dick's Sporting Goods (DKS) missed Q4 sales estimates Monday. But outdoor sports chain Cabela's (CAB) guided earnings up Tuesday.

Health and personal care retailers were flat. Clothing stores rose 0.2%, after surging 0.8% in January and 0.9% in December.

Last week, retailers reported an overall 2% gain in February same-store sales vs. a year earlier, short of the 2.5% expected, according to Retail Metrics.

Other analysts were more upbeat on retail sales. Tom Porcelli, chief U.S. economist at RBC Capital Markets, raised his views on Q1 consumption and GDP growth. Income tax refunds will add to last month's bigger wage gains, helping Americans absorb the fiscal drags.

"The consumer seems completely unfazed by the plethora of head winds dotting the landscape," he said in a research note.