Gift card redemptions boost retail sales

WASHINGTON — Retail spending, hurt by a falloff in auto sales, dipped slightly in January, but demand stayed strong in other areas as people rushed to the malls with their Christmas gift cards.

The Commerce Department reported Tuesday that overall retail sales dipped 0.3 percent last month following a huge 1.1 percent increase in December.

However, both months were heavily influenced by a big swing in demand for autos. Car sales soared 4 percent in December as dealers offered attractive incentives to clear out a backlog of unsold cars. But in January, with less attractive incentive packages, car sales fell by 3.3 percent.

Excluding the volatile car sector, retail sales rose by a stronger-than-expected 0.6 percent in January, double December’s 0.3 percent gain outside of autos.

“The consumer is still out there trying to spend,” said Robert Dederick, head of RGD Economics, a Chicago consulting firm. “Businesses should be the dynamic sector this year but the consumers will very much be in a supporting role.”

Consumer spending, which accounts for two-thirds of total economic activity, is expected to remain solid this year but at a slightly slower pace than in 2004, reflecting in part a belief that activity will cool as the Federal Reserve keeps pushing up interest rates.

Analysts said part of January’s strength reflected people redeeming their Christmas gift cards. A survey by Deloitte & Touche USA found the average adult received 3.2 gift cards in the holiday season just ended, up from 2.5 gift cards in 2003. The survey estimated that the redemption of gift cards pumped up retail sales by nearly $18 billion during December and January.

“Gift cards are becoming a lot more popular and that moves a lot of spending on products from December into January,” said David Wyss, chief economist at Standard & Poor’s in New York. “The sales strength was pretty amazing given how lousy the weather was in the second part of the month.”

The January retail sales report showed the areas experiencing rising sales were fairly widespread, led by a 1.8 percent jump in demand at clothing and clothing accessory stores.

Sales at general merchandise stores, a category that includes department stores, rose by 0.6 percent, as did sales at sporting goods, hobby, book and music stores.