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Retail Data Shows Strong Start to Holiday Season
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JAVIER C. HERNANDEZ

Published: December 11, 2009

A strong start to the holiday shopping season pushed retail sales higher in November, the government reported on Friday, propelling stock prices near their recent highs.


The New York Times
Hopes that consumers may be opening their wallets ever so slightly even in this grim job market were also bolstered by a separate report that showed consumer confidence improving.

In retailers as diverse as health stores and electronics boutiques, sales rose 1.3 percent last month from October, nearly twice the gain economists had expected. Excluding cars and gasoline sales, which can be volatile, the jump was 0.6 percent, three times as much as economists had predicted.

The rosy numbers brought the Dow Jones industrial average up to within a point of its highest level in more than a year, as investors grew more confident that companies would be reaping better-than-expected profits this holiday season. Other stock indexes were mixed, with Standard & Poor’s 500 rising about 0.4 percent and the Nasdaq composite closing slightly lower.

Trading remained light, however, and concerns continued that an economic recovery might cause the Federal Reserve to move toward higher interest rates sooner than predicted.

The Commerce Department’s report on sales brought relief to business owners, who had feared consumers would rein in spending this year as the unemployment rate crept above 10 percent and the recovery showed signs of weakness. The data reinforced the expectation of modest growth in consumer spending over the next several months, economists said, though retail sales alone would probably not increase fast enough to lift the economy out of its downturn.

A gauge of consumer confidence added to hopes of a revival in spending. The University of Michigan’s index registered its first increase in three months and outpaced expectations.

The consumer sentiment index reached 73.4 in early December, an increase of 6 points, as Americans appeared reassured by the slowing pace of job losses and encouraged by deep discounts from retailers.

“The momentum here is positive,” said James F. O’Sullivan, chief economist for MF Global. “We’re seeing that better spending leads to a better job market which leads to better spending, in stark contrast to the downward spiral we were seeing a year ago.”

In 2008, the picture of consumer spending was far dimmer: sales took a steep plunge toward the end of the year, dipping below $340 billion a month, as the financial crisis reached its peak. While sales reached $352.1 billion last month, that remained well below the $380 billion monthly sales figures of 2007.

Spending by consumers makes up more than two-thirds of the economy, and some analysts say a true recovery will not come until Americans start buying in large amounts again. That may be difficult in a country where at least 15.4 million people remain unemployed, many of them for more than six months, and as many families struggle with meager paychecks and reduced hours.

“The difficulties in the labor market, the desire to reduce and the tightening of lending standards of all kinds should serve to cap the pace at which spending will rebound in 2010,” Dan Greenhaus, chief economic strategist for Miller Tabak, wrote in a research note Friday.

The retail sales figure reflected a 1.9 percent increase from November 2008, when the chill in consumer spending had begun to take hold — the first year-over-year increase since August 2008.

Sales of cars and gasoline led the strong gains over all, though sales were up for goods of many types, including food, electronics, garden supplies and sporting goods. Cars and car parts rose 1.6 percent, even in the absence of government-financed incentives like the cash-for-clunkers program, and gasoline sales increased 6 percent, pushed up by rising prices. Mail and Internet orders rose 1.2 percent, while clothing sales fell 0.7 percent.

Holiday sales are still expected to come in well below the highs of two and three years ago, and some major chains actually reported sales were weaker than expected in November. Economists explained the discrepancy by noting the government’s report measures a wider slice of the economy, including grocery stores and discounters like Wal-Mart.

The Commerce Department also revised downward its October results, saying sales increased by 1.1 percent rather than the 1.4 percent originally reported. The government adjusts its sales numbers to discount the boom from holiday shopping.

There were also indications of economic renewal on the business side. A government report showed that businesses increased their inventories in October, after more than a year of cutting back. The gain was a modest 0.2 percent, but analysts had said they believed inventories would decline by that much. Any increase means businesses are restocking their shelves, which stimulates factory production and creates jobs.

“If firms decide to stop cutting inventories altogether, that’s going to be a huge boost to growth,” said Haseeb Ahmed, senior economist at JPMorgan Chase. “If that happens, you don’t really need anything beyond modest growth in consumer spending for a sustainable recovery.”

A report on United States imports and exports released Friday showed signs that vast stimulus efforts worldwide are causing increases in prices. The Labor Department said the price of imports rose 1.7 percent in November, the fourth consecutive month of gains, largely because of increasing fuel prices.

Still, the Federal Reserve has said that inflationary pressures remain in check and that it does not expect inflation to emerge as a threat to economic stability, even as interest rates remain close to zero.