December retail sales rise 1.2%

Martin Crutsinger

Thursday, Jan. 13, 2005 | 11:12 a.m.

WASHINGTON -- Retail sales, helped by sizzling activity in auto showrooms, jumped by 1.2 percent in December, providing a solid finish to a year in which sales climbed at the fastest pace since 1999.

The December increase in retail sales pushed total spending for the month to a seasonally adjusted $349.4 billion, the Commerce Department reported today.

The December gain followed a much smaller 0.1 percent rise in November and reflected the fact that consumers were spending heavily on new cars in response to the return of attractive incentive programs.

Spending on car purchases shot up 4.3 percent last month after having fallen by 1 percent in November.

Excluding autos, consumer spending rose by a more moderate 0.3 percent in December, slightly lower than the 0.4 percent increase excluding autos in November.

However, analysts said that spending would have been better last month if it had not been for a big drop of 2 percent in sales at gasoline service stations, a decline that was seen as positive for the economy because it reflected lower gasoline pump prices rather than weaker demand.

For the year, retail sales climbed a solid 8 percent, the best performance since an 8.5 percent rise in 1999 and a performance that analysts hailed as showing that consumers, who have been the star performers in this recovery, are still willing to spend.

"All this worry about consumer being overwhelmed by debt and threatening to pull back is very much overblown," said Bill Cheney, chief economist at John Hancock Financial Services in Boston. "We have got job growth and people are out spending. We really do have some momentum to the economy."

The 1.2 percent jump in overall sales in December showed that retailers did indeed have a solid Christmas sales season, helped by a surge of shopping just before and after the holiday that helped to alleviate worries about a slow start to the holiday season.

"Households spent a ton in December and it was not just gift cards that they were buying," said Joel Naroff, head of Naroff Economic Advisors.

In a second report, the Labor Department said that the number of Americans filing new claims for unemployment benefits rose by 10,000 last week to a three-month high of 367,000. The four-week moving average, which smooths out weekly fluctuations, rose to a three-month high as well of 344,000.

But analysts cautioned that the jobless figures often produce misleading signals in holiday weeks. They noted that payroll job growth has been strong in recent months, translating into 2.2 million new jobs for all of 2004, the best performance in five years.

Wall Street, however, shrugged off the strength in retail sales to focus instead on another worrisome rise in oil prices. At mid-day, the Dow Jones industrial average was off by about 50 points.

The standout performers in terms of retail sales in December in addition to auto dealers were furniture stores, where sales jumped by 2.2 percent, the best gain since June, reflecting the fact that the housing industry remained red hot throughout the year.

Sales were also strong at sporting goods, hobby and book stores which posted a 0.9 percent increase, the best showing since a 1.3 percent gain in July.

General merchandise stores, a category that includes department stores, saw sales rise by 0.7 percent, up from a 0.4 percent gain in November and the best showing since October. Sales at department stores alone posted a 0.2 percent increase.

Analysts believe consumer spending, which accounts for two-thirds of total economic activity, will remain strong in 2005, helped by continued improvement in job growth.