Consumer spending seems to be picking up

Department store sales rose in July and major store groups have reported better-than-expected results.

Retail sales in large chain stores rose by 3.1% last week compared with the same week last year, and climbed by 2.6% on the previous week.

The growth was driven by clearance sales, and has yet to reflect the impact of back-to-school spending and the tax rebates distributed by the Federal government last month.

"As a growing trend, consumers are delaying purchases as long as possible and waiting for clearance sales later on," the weekly Redbook sales survey said in analysing its sample of 9,000 stores.

However, strong retail sales may help persuade the Federal Reserve to hold off further interest rate cuts until the economic situation is clearer.

Stores more optimistic

Meanwhile, several of the biggest US retailers reported profits for the last quarter above Wall Street expectations, and said they hoped for a rebound in sales in the second half of the year.

J.C. Penney, the 1,075-store family retailer that has been in the midst of a major restructuring, said a rebound in clothing sales compensated for "clearly disappointing demand" at its Ekerd drug store chain.

It reported a net loss of 2 cents per share, better than Wall Street's expectations of 5 cents per share.

Chairman Allen Questrom said "we anticipate benefits from a more favourable consumer environment supported by the positive impact of the tax package" in the rest of the year.

In the April to June quarter, stores were hurt by a collapse in consumer confidence during the Iraq war, and unusually wet spring weather, which reduced demand for summer clothes.

Nevertheless, the more upmarket May department store chain, which owns Filenes, Hechts, and Lord & Taylor, reported sales broadly unchanged at $3bn for the quarter, and profits - after exceptional restructuring costs of $318m - of $92m, again beating expectations.

On Wednesday many of the other major US retail chains, including Wal-Mart, Target, and Federated Department Stores, which owns Macys and Bloomingdales, will report their earnings.