August Retail Spending Increase Raises Eyebrows, not Stocks

Back to school sales went better than expected across the country. Despite slow economic recovery and surging gas prices, Americans have increased their spending in August for the first time in 5 months. According to the Commerce Department, the 0.4 percent increase accounts for 70 percent of U.S. economic activity.

This is great news for retailers who have been clinging tightly to flat numbers since February. Discount retailer Target was pleasantly surprised when its sales were tallied recently. The Minneapolis-based company is celebrating the back-to-school season because its early third quarter earnings have well surpassed Wall Street’s predictions.

"Sales were stronger in the second half of the month, as guests responded to Target's broad assortment and compelling value for their back-to-school and back-to-college shopping," CEO Gregg Steinhafel said in a statement. Stores that have been opened and operating for over a year saw a 4.2 percent increase in revenue compared to figures from the previous year. That helps to keep Target's annual average so far at a strong 4.8 percent which equates to $38.5 billion.

The recent bump in the bar graph doesn’t seem like such a big deal to some. Strong sales from stores like Target as well as other small increases in spending at retailers across the country aren’t going to be enough to make future projections optimistic just yet. At the end of August, online news source Newser noted, “The Dow Jones industrial average lost 67 points to 13,041. The Standard & Poor's 500 fell nine to 1,402. The Nasdaq slipped 19 to 3,062.”

Both the stock market and consumers seem to be hesitant to put their trust in the retail market. The Los Angeles Times reports, “The New York-based Conference Board's Consumer Confidence Index fell to 60.6, down from a revised 65.4 in July. Economists had expected a reading of 66. The index now stands at the lowest point since November 2011 when the reading was at 55.2, and still far below the 90-reading that indicates a healthy economy.”

Both the increase in revenue and decrease in stocks are being taken into consideration this week as the U.S. Federal Reserve’s Open Market Committee (FOMC) discusses launching a third round of bond-buying coined QE3. This is a process that involves printing dollars also known as quantitative easing. Whether or not the Fed offers additional monetary stimulus to the economy at its September 12th policy meeting could be influenced by the condition of the labor market.

Paul Dales, a senior economist at Capital Economics projects that the FMOC will go ahead with the initiative. He asserts, "Today's data...are not strong enough to prevent the Fed from launching QE3 in mid-September."

David Goerz, chief investment strategist at HighMark Capital Management in San Francisco doesn’t agree. He tells Reuters, "We don't believe that economic conditions justify any further action by the Fed."

What do you think? Should the Fed print more bonds to help out struggling retailers in the hopes of boosting the economy and increasing jobs, or wait and see if the increase in sales sticks?

Image compliments of Pixomar via Free Digital Photos.