* Sales rise 0.5 percent in December, gains broad-based
* Producer prices fall 0.2 percent
* November business inventories rise 0.3 percent
By Lucia Mutikani
WASHINGTON, Jan 15 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, beating economists'
expectations of only a 0.2 percent gain.
Consumers showed resilience even as the economy teetered on
the edge of a so-called "fiscal cliff" - $600 billion of
automatic government spending cuts and tax increases that were
scheduled to start kicking in at the beginning of this year.
"Consumers continue to provide underlying support for the
economy," said Eric Green, chief economist at TD Securities in
Sales 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 last month 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. Consumer spending growth is seen expanding at around a
2.3 percent rate in the last three months of 2012.
While some economists lifted their fourth-quarter gross
domestic product forecasts after the sales data, weak exports, a
slow pace of inventory accumulation and the reversal of a surge
in defense spending will keep growth below 2 percent.
The economy grew at a 3.1 percent rate in the third quarter.
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 fourth quarter.
Retail shares on Wall Street rose on the data, helping to
support the overall stock market. The Morgan Stanley retail
index ended up 1.5 percent.
TAXES SEEN SLOWING SALES
While an 11th hour deal by Congress avoided the worst of the
"fiscal cliff," households will still see reductions in their
paychecks starting in January. That could cause a step back in
spending early this year.
"We expect a pullback in consumption spending as consumers
adjust to higher payroll taxes and higher taxes for upper income
households that eat into disposable income," said Joshua
Dennerlein, an economist at Bank of America Merrill Lynch in New
Economists estimate that the tax hikes could shave as much
as 1.2 percentage points off consumer spending in the first
quarter. They see consumer spending in the first three months of
the year growing at a meager 0.5 percent rate.
A third report from the Labor Department showed prices
received by the nation's farms, factories and refineries fell
0.2 percent in December as energy costs fell. The producer price
index had dropped 0.8 percent in November.
Wholesale prices, excluding volatile food and energy costs,
edged up 0.1 percent for a second month in a row.
Economists said benign inflation against the backdrop of
sluggish growth in the first half of 2013 should cause the Fed
to stick with its accommodative monetary policy, despite doubts
created by minutes of the December policy meeting released
earlier this month.
Those minutes showed some officials expected the central
bank would have to end its bond buying well before the end of
"Inflation is a worry for another day. The tame inflation
data and expectations of weak GDP data suggests that the Fed is
going to continue to purchase assets through most of this year
and probably extend it to early 2014," said Ryan Sweet, a senior
economist at Moody's Analytics in West Chester, Pennsylvania.
Boston Fed President Eric Rosengren told Reuters on Tuesday
the U.S. central bank could continue buying bonds into early
next year if the labor market improves only gradually.
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, reflecting a 14 cent drop in gasoline prices at the pump.
There were gains in furniture sales, and sales at clothing
retailers rose the most since February. 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, weighed down by weak
orders and shipments.