Retail Sales Rise Only Slightly in December

U.S. retail sales barely edged up in December despite the Christmas shopping season, the government reported Friday, while cheaper gasoline helped keep a lid on wholesale prices.

Analysts said the two reports left the Federal Reserve ample room to keep trimming interest rates to spur a lagging economic expansion, though not as aggressively as last week’s surprise half-percentage-point cut.

Total retail sales, which are a reflection of consumer demand, increased by 0.1% to $271.34 billion, helped by an unexpected pickup in new-car sales. It followed back-to-back revised sales drops of 0.5% and 0.1% in November and October, respectively.

Excluding dealers’ sales of new cars that account for one quarter of monthly retail business, sales in December were flat after falling 0.2% in November. Merchandise-store sales were off 0.8% to $34 billion, the sharpest fall since a 1.1% plunge in October 1995.

Wholesale prices measured by the producer price index were unchanged in December after a 0.1% rise in November.

Excluding the volatile food and energy sectors, the so-called core rate rose 0.3%, exceeding expectations, after being unchanged in November. Analysts said the core increase was not troubling enough and did not imply wholesale costs were pressuring producers.

“The Fed should read these numbers with some confidence that if they continue to cut rates inflation should not flare up,” said economist Joel Naroff of Naroff Economic Advisers Inc. in Holland, Pa.

The No. 2 official at the U.S. central bank, Vice Chairman Roger Ferguson, assured a business group in California that policymakers are closely studying all economic data and are ready to act “prudently and forcefully” to sustain growth.

Ferguson forecast a bout of “notable weakness” early this year, but with a bounce back later on the back of continued productivity gains. He cited private-sector forecasters who expect the economy to grow by 2% to 3% this year.

The retail sales report showed a surprising 0.3% pickup in new-car sales to $66.44 billion, after plunges of 1.3% in November and 0.7% in October, which helped put a hopeful cast on the latest batch of economic data.

“Certainly they are a far, far way from the days when we thought retail sales would never slow down,” said economist Paul Christopher of A.G. Edwards and Sons Inc. in St Louis. “But the people moaning and groaning out there about recession need to look a little more carefully at the data.”

Last week, the Fed cited its concern about softening demand when it cut its key federal funds interest rate half a percentage point in a surprise move between regularly scheduled meetings of its rate-setting Federal Open Market Committee.

Kathleen Camilli, an economist at Tucker Anthony in New York, said the Fed had ample reason to slash rates last week but might not have ammunition to repeat such dramatic action.

“We had the data to support 50 [basis points], but I don’t think we have the data to support another 50,” Camilli said, implying the next rate cut might be smaller.

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Retail Sales

In billions of dollars, seasonally adjusted:

December: $271.3 billion

Source: Commerce Department

Producer Prices

Index of finished goods prices; 1982=100; seasonally adjusted:

December: 139.7

Source: Bureau of Labor Statistics