Drop in Retail Sales of 0.1% Is Smaller Than Expected

U.S. retail sales dipped in December, but the decrease was smaller than expected and shows the consumer may be in better shape than Federal Reserve policymakers believe.

The Commerce Department said retail sales dipped 0.1% in December.

Although it was a second straight decline, it was much less than the 1.4% decline Wall Street analysts had been anticipating.

Sales outside of the auto sector also were off by 0.1% in the month.

Treasury Secretary Paul H. O’Neill cited the Commerce Department report as further evidence that the U.S. economy is recovering from its first recession in a decade.

He said the economy probably will return to a growth rate that is lower than its potential pace of more than 3%.

“We see signs that the economy is improving, but the signs don’t give a clear indication that our rate of improvement will be as strong as we’d like it to be,” O’Neill said in a speech Tuesday to the National Retail Federation in New York.

Analysts said the report shows the consumer, although not exactly spending freely, did not go into hibernation in the fourth quarter of 2001 after the Sept. 11 attacks on the World Trade Center and the Pentagon.

“It tells us consumers are not tapped out,” said Ken Mayland of ClearView Economics, a Pepper Pike, Ohio, consulting firm.

Fed Chairman Alan Greenspan on Friday expressed concerns about how well household spending will hold up ahead.

The December retail numbers did little to sway most analysts from the expectation the Fed will cut rates again Jan. 30 at the end of its two-day policy meeting, but some acknowledged it weakened the case for such a move.

David Orr, chief economist with Wachovia Securities in Charlotte, N.C., said the report “should move the probability of a Fed rate cut on Jan. 30 back closer to 50-50,” though he still believed there would be a rate reduction.

Another retail reading released Tuesday also was upbeat. The Redbook Retail Sales Average, released weekly by Instinet Research, showed purchases at discount, chain and department stores were up 4.3% in the first week of January, compared with the same week in December.