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Outlook still dodgy despite December gains

Several big U.S. retailers enjoyed better-than-expected sales in December - some even boosted their fourth-quarter profit projections - but economists still don't see consumers fuelling a return to prosperity for the retailers at this point.

Sales results released yesterday provided some signs of optimism, though analysts said much of the good news may have had more to do with better-managed inventories. Department store giants Macy's Inc. and Sears Holdings Corp. were among retailers boosting their outlook.

"The fundamental question is, is this a sign that there's more life in the consumer than we thought ... or did the American consumer enjoy a holiday and is now going to hibernate for the winter?" said Ken Goldstein, an economist with the Conference Board in New York. "And the answer is: It's going to be one or the other."

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Observers said retailers were careful this holiday season to avoid overstocking their shelves, meaning they were not forced to revisit the steep discounts of December, 2008.

According to sales numbers from 30 U.S. retailers tracked by Thomson Reuters data, 71 per cent reported better-than expected sales for stores open more than a year. Overall December sales were up 2.9 per cent, higher than the 2 per cent Wall Street had expected.

The Conference Board's Mr. Goldstein said U.S. job numbers to be released today will shed more light on whether Americans actually have any money to spend.

Paul Dales, an economist who watches the United States for Capital Economics research consultancy in Toronto, cautioned against reading too much into yesterday's data.

"The thing that you probably need to consider is that expectations have been pretty low. ... It's obviously going to be much better because last year was a complete disaster," Mr. Dales said.

According to the International Council of Shopping Centres, same-store sales for all of 2009 were the worst on record, down 2 per cent. Mr. Dales noted that U.S. consumers are still burdened by debt, and joblessness or the fear of it.

"Obviously things seem to be improving. You can't really deny that," he said.

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"Consumers are at least spending a little bit. But we don't think they will continue to improve and develop into a sustained consumer recovery that will be able to drive the overall economy forward."

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About the Author
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

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