Tax rebate checks gave consumers a little extra money in their pockets during May, but most were still spending conservatively, buying necessities such as food and gas and shying away from splurging on clothing or furniture.
The result was some better-than-expected sales for the nation's retailers, with lower-priced merchants like discounters and wholesale clubs showing the strongest gains.
Accordingly, Costco Wholesale Corp. and Wal-Mart Stores Inc. were among the strongest performers, but fewer rebate dollars made their way to the mall, and retailers such as Gap Inc. and American Eagle Outfitters Inc. missed expectations.
“It was a great month for discount retailers, but the rest of retail is struggling to capture a share of the consumer's wallet,” said Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle.
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Overall, results were better than the gloomy May analysts predicted as consumers still shopped despite rising energy costs, declining home values and tightening credit, and some analysts saw some glimmers of a possible pickup in business later this year. And tax rebate checks helped offset rising gas prices, said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass.
“It certainly looks as though gas tanks didn't siphon off all of the rebate stimulus,” he said. “Consumers were able to spend in May.”
Michael Niemira, chief economist at International Council of Shopping Centers, said May results, coupled with a hoped-for decrease in gas prices in the coming months, could be the start of a turnaround in the sector. Gas prices now average close to $4 a gallon nationwide, and while they are expected to edge higher in the short term, are predicted to decline after that.
“The tax rebate money is starting to help a little bit, but it will probably become a bit more widespread in coming months,” Niemira said.
But retailers were still wary. Even Wal-Mart, which surpassed analyst forecasts, acknowledged consumers' reluctance to spend.
“Our customer is clearly under pressure when it comes to higher gas prices, higher food prices for that matter,” said Tom Schoewe, Wal-Mart's chief financial officer.
As of May 30, the Treasury Department said 57.43 million tax rebate payments have been sent out totaling $50.041 billion, just under half the $106.7 billion the government expects to send out.
Craig Johnson, president of the consultancy Customer Growth Partners in New Canaan, Conn., predicted consumers will save or pay down debt with about 60 percent of their rebate money and spend about 40 percent, providing an “overall modestly positive, but clearly positive,” boost to sales continuing through the summer and back-to-school shopping season.