January Surprise: Retail Sales Edge Higher

US retail sales edged up 1% in January, ending a 6-month decline.

But unemployment claims reached a record 4.8 million 2 weeks ago, underscoring the continued downward pressure on consumer spending and suggesting there's more bad news ahead despite last week's slight drop in new claims to 623,000.

The US Commerce Department says January's report includes increases in car sales and general merchandise sold through big-box retailers such as Wal-Mart (WMT). But cash-strapped consumers are staying away from higher-priced department stores. Macy's (M), for example, recently announced it would cut 7000 jobs, or about 4% of its workforce, in response to slow sales.

Overall, retailers cut about 45000 jobs in January, the US Labor Department reports.

Before last month's 1% uptick, retail sales had declined for 6 straight months. Analysts expected sales to drop 0.8% in January. Sales fell 3% in December, the weakest holiday in about 35 years.

The 1% increase is welcome news, but sales for December and November were revised downward by 0.3% each. Worse, retail sales were 9.7% lower last month than they were in January 2008.

And nobody's immune. The aforementioned Wal-Mart, generally one of the few winners in this harsh economic climate, announced it will open fewer new stores this year and plans to cut as many as 800 jobs at its Arkansas headquarters.

Bottom line: Don't look for a permanent rebound in consumer spending anytime soon because employment is still weak, credit remains tight and home prices continue to decline. We're a long way from being out of the woods.