Shoppers Keep Spending--Sales Up Strong 1.1% : Economists Fear Surprise Monthly Rise May Prompt Fed to Tighten Credit

Retail sales in November got the crucial holiday shopping season off to a fast start by posting a second consecutive strong monthly gain, the Commerce Department said Tuesday in a report reflecting a buoyant U.S. economy.

The department said sales jumped 1.1% in November to a seasonally adjusted $138.1 billion. That followed a 1.6% increase in October, revised up from an earlier estimate of 0.9%.

November’s retail sales got the crucial holiday shopping season off, totaling a seasonally adjusted $138.1 billion.

“It looks like the Christmas season will be better than people feared and make an important contribution to growth,” Commerce Undersecretary Robert Ortner said.

“Everybody keeps writing off the consumer sector of the economy, but consumers don’t know they are supposed to stop spending,” Ortner said. “Their incomes are growing and they are optimistic.”

Christmas sales provide general merchandisers with about half of their annual profits. Retail sales are considered a key indicator of economic growth because consumer activity accounts for about two thirds of gross national product.

Economists said the growth of retail sales was spurred by a tightening labor market that produced 700,000 new jobs over the past two months. But some said the latest indications of a healthy economy may have inflationary side effects.

With the November increase, which was more than twice as much as Wall Street economists had expected, retail sales were 8.4% above their year-earlier level.

“It tends to confirm what the employment numbers are telling us,” said economist Michael Penzer of Bank of America. “It sort of fits a picture that shows the economy is really quite strong.”

“It suggests that the consumer is back doing his good old job of spending every dollar in his pocket,” added economist David Wyss of Data Resources in Lexington, Mass. “I think you have to be really worried about inflation.”

Many economists had expected sluggish sales, in part because the Federal Reserve has been nudging interest rates higher since March.

The Fed fears that excessive consumer demand could lead to higher inflation and make it difficult to stem the flood of foreign imports and shrink the nation’s trade deficit. The Federal Open Market Committee, which sets monetary policy, was meeting behind closed doors Tuesday.