January 14, 2014 / 2:15 PM / 4 years ago

WRAPUP 3-U.S. retail sales, inventory data suggest strong Q4 growth

* Consumer spending gauge rises 0.7 percent in December
    * Overall retail sales increase 0.2 percent, autos fall
    * Retail inventories, ex-autos, rise in November

    By Lucia Mutikani
    WASHINGTON, Jan 14 (Reuters) - U.S. retail sales edged up in
December with a core spending gauge posting a big jump, a sign
the economy gathered steam at the end of last year and was
poised for stronger growth in 2014.
    The Commerce Department said on Tuesday that retail sales
gained 0.2 percent last month, even as receipts at automobile
dealers recorded their biggest drop in more than a year. 
    November's sales were, however, revised to a 0.4 percent
increase from 0.7 percent. Excluding autos, sales rose 0.7
percent in December, the largest increase in 10 months.
    "The surge in sales in December means the momentum will
continue into the first quarter of the new year. 2014 is shaping
up to be pretty good from where we sit," said Chris Rupkey,
chief economist at Bank of Tokyo-Mitsubishi UFJ in New York.
    Economists had expected retail sales to rise just 0.1
percent last month. For all of 2013, sales increased 4.2
    Sales excluding automobiles, gasoline, building materials
and food services, increased 0.7 percent after a 0.2 percent
rise in November. Economists looked for a gain of just 0.3
    These so-called core sales correspond most closely with the
consumer spending component of gross domestic product, and the
increase suggested consumption accelerated in the fourth quarter
from the third quarter's 2 percent annual pace.
    While a report on Friday showed job growth stumbled in
December, that was largely dismissed as being due to cold
weather, and economists said a wealth of other data suggest the
economy is gaining strength.
    "Weather aside, if we're right in thinking that the
underlying trend in jobs growth is still improving, households
will continue to spend more freely in 2014," said Paul Dales,
senior U.S. economist at Capital Economics in London.
    "This report supports our view that a 4 percent annualized
rise in real consumption will help to generate a decent 3.0
percent gain in overall GDP in the fourth quarter," he added.
     The government report suggested holiday sales were better
than some had expected, though at the cost of heavy discounting
by shopkeepers. The National Retail Federation said a measure of
holiday sales, which leaves out spending on cars, gasoline and
restaurant meals, rose 3.8 percent in the November-December
period from a year earlier, up from the 3.5 percent rise in
    Fourth-quarter growth prospects were further boosted by a
second report from the Commerce Department showing retail
inventories, excluding autos, increased 0.6 percent in November
after increasing 0.3 percent in October.
    Businesses aggressively accumulated inventories in the third
quarter and warehouses were left bulging. Economists had
anticipated a need for businesses to sell off those goods, which
would have undercut production in the fourth quarter.
    It now appears some of the inventory build-up was planned.
    "It does not appear that the fourth-quarter GDP report will
feature a drag from inventories and, possibly, might even show a
modest further addition to growth," said John Ryding, chief
economist at RDQ Economics in New York. "It is hard to argue
that this pickup in inventory investment is excessive."
    The economy grew at a 4.1 percent rate in the third quarter,
which was the fastest pace in almost two years. Fourth-quarter
GDP growth estimates range as high as a 3.9 percent rate. 
    Stocks on Wall Street were trading higher on the data, while
the dollar rose against the yen. U.S. Treasury debt prices fell.
    A stock market rally last year and rising home values have
boosted household wealth, encouraging Americans to open their
wallets a little bit more.
    Sales last month were lifted by a 1.8 percent rise in
receipts at clothing stores. Sales at food and beverage stores
recorded their largest increase in seven years. There were also
increases in online store sales.
    "Consumer spending continues to get tailwinds from the
recovery in the housing market, as well as fortuitous declines
in the price of gasoline," said Brian Bethune, chief economist
at Alpha Economic Foresights in Boston. 
    A cold snap likely held down sales of automobiles. Receipts
at auto dealers fell 1.8 percent, the largest decline since
October 2012. They had risen 1.9 percent in November.
    Sales of furniture, sporting goods, building materials and
garden equipment and electronic appliances also fell.
    A separate report from the Labor Department showed import
prices were unexpectedly flat in December, showing no signs of
imported inflation. 
    Domestic inflation continues to trend lower and the lack of
price pressures means the Federal Reserve will likely keep
interest rates near zero for a while even as it scales back its
monthly bond purchases.
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