U.S. retail sales rose solidly in December as Americans shrugged off the threat of higher taxes and bought automobiles and a range of other goods, suggesting momentum in consumer spending as the year ended.
Other data on Tuesday showed inflation pressures remained muted, with wholesale prices declining for a third straight month in December. That should allow the Federal Reserve to stay on its very easy monetary policy path to nurse the recovery.
Retail sales increased 0.5 percent after rising 0.4 percent in November, the Commerce Department said. Economists polled by Reuters had expected sales to rise only 0.2 percent.
"That does suggest a resilient consumer in the face of the fiscal cliff debates. It offers a favorable sign for fourth-quarter growth," said Joe Manimbo, a senior market analyst at Western Union Business Solutions in Washington.
Sales were up 4.7 percent from December 2011 and rose 5.2 percent for the whole of 2012.
So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, increased 0.6 percent after advancing 0.5 percent in November.
The second straight month of gains in core sales suggested consumer spending picked up in the fourth quarter after rising at an annual pace of 1.6 percent in the July through September period.
Some economists raised their forecasts for fourth-quarter GDP after the retail sales data. Last week, analysts slashed their already low growth forecasts in the wake of a wider trade deficit in November.
A second Commerce Department report showed business inventories rose a modest 0.3 percent in November, backing views restocking would not support growth in the last three months of the year.
Financial markets showed little reaction to the data.
TAXES SEEN SLOWING SALES
Although an 11th hour deal by the U.S. Congress avoided the worst of the so-called fiscal cliff, or $600 billion automatic government spending cuts and higher taxes, households will see reductions in their paychecks starting in January.
Economists say this could keep consumer spending tepid early this year and a looming fight over raising the country's debt ceiling could dent consumer sentiment.
"People are worried about slower spending in the first quarter with the implementation of higher taxes and uneasiness about the debt ceiling fight. They will adjust their spending accordingly," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Economists estimate that the tax increases could shave as much as 1.2 percentage points off consumer spending in the first quarter.
In a second report, the Labor Department said its seasonally adjusted producer price index slipped 0.2 percent last month as energy costs fell.
Wholesale prices, excluding volatile food and energy costs, rose a modest 0.1 percent for a second month in a row.
Retail sales last month were up almost across the board, with receipts at auto dealerships rising 1.6 percent after increasing 2.7 percent in November.
Sales at service stations fell 1.6 percent, reflecting a 14 cent drop in gasoline prices at the pump. Receipts at gasoline stations declined 4.5 percent in November.
Sales at building materials and garden equipment suppliers were flat after rising 0.8 percent. There were gains in furniture sales, while sales at clothing retailers rose by the most since February.
Receipts at sporting goods, hobby, book and music stores rose, but sales at electronics and appliances shops fell.
While the consumption side of the economy is holding up fairly well, production appears to be faltering.
A third report showed factory activity in New York State fell for a sixth straight month in January, against the backdrop of weak orders and shipments.
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