WASHINGTON: Consumers increased spending at retail businesses in December, buying more autos, furniture and clothing. Steady job growth and lower gas prices kept consumers shopping for the holidays, despite worries about potential tax increases.
Retail sales rose 0.5 percent in December from November, the Commerce Department said Tuesday. That’s slightly better than November’s 0.4 percent increase and the best showing since September.
Sales of autos and auto parts rose 1.6 percent to lead all categories. Car companies closed out their best sales year since 2007.
Total retail spending was even stronger when factoring out a steep drop in gas prices.
And so-called core retail sales, which exclude gas, building materials and autos, rose 0.6 percent after a 0.5 percent increase in November. Economists pay closer attention to core sales because they strip out the most volatile categories and are a better gauge of consumer spending.
Two consecutive months of solid increases in core sales suggest consumers were not too worried about tense federal budget negotiations that recently took place. Congress and the White House ultimately reached a deal Jan. 1 that prevented income taxes from rising for most households.
Still, retail sales are likely to weaken in the first half of 2013 because lawmakers and President Barack Obama allowed a two-year reduction in Social Security payroll taxes to lapse. Most Americans will start seeing less money in their paychecks this month.
A person earning $50,000 a year will see take-home pay shrink by roughly $1,000 in 2013. That’s likely to slow consumer spending and weigh on overall economic growth.
“Nothing in today’s data does anything to dispel the notion that consumer spending the first half of 2013 should be quite weak,” said Dan Greenhaus, chief global strategist at BTIG. “The smaller paychecks will be anything but a welcome development.”
Consumer spending drives about 70 percent of economic activity.
Even though consumers kept spending at the end of the year, most analysts predict overall economic growth weakened in the October- December quarter to an annual rate below 2 percent. That’s largely because companies built up their stockpiles at a slower pace than over the summer. Faster restocking was a key reason the economy grew at an annual rate of 3.1 percent in the July-September quarter.
And growth in retail spending for all of 2012 ended up being less robust than the previous two years. Retail sales rose just 5.2 percent last year — slower than the 7.9 percent growth in 2011 and the 5.6 percent growth in 2010.
The government retail sales report showed consumers spent 1.4 percent more at furniture stores, 1.4 percent more on health and personal care shopping, and 1 percent more at specialty clothing stores.
Sales were flat at general merchandise stores, a category that has department stores such as Macy’s and big retailers such as Walmart and Target. But that followed a 0.8 percent decline in November.