Consumer spending climbs in December

The economy got yet another mixed signal Tuesday with consumer spending in December climbing slightly. With last week’s job reporting coming in lower than analysts expected, this could be another way to confuse investors.

Writing for the Wall Street Journal, Jeffrey Sparshott and Paul Ziobro had this story:

Americans kept shopping at a steady pace as the holiday season wrapped up, suggesting the U.S. economy was on firm footing heading into this year.

Retail sales gained 0.2% in December and jumped 0.7% excluding auto sales, the Commerce Department said.

Though overall sales in prior months were revised modestly lower, they indicated a pickup in demand from consumers during the fourth quarter alongside other signs of a strengthening economy.

The final stretch of the year “was a pretty solid quarter for consumers,” said Julia Coronado, chief economist at BNP Paribas. “That certainly puts us on decent footing going into 2014.”

Consumer spending, which accounts for more than two-thirds of economic output, is expected to show a big contribution to U.S. growth in the final months of 2013. Economists now expect growth at or above a 3% annualized pace in the fourth quarter after registering a strong 4.1% rate in the third quarter.

U.S. households were resilient throughout much of last year despite higher payroll taxes, which sapped spending power, and Washington gridlock, which jolted confidence. Many Americans have been buoyed by rising prices for homes and a strong stock market. Debt burdens are down, leaving more disposable income and raising expectations for solid growth in consumer spending this year.

The Reuters story by Lucia Mutikani explained the disappointing job numbers and quoted analysts as saying the economy was heading in the right direction:

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 2012.

Bloomberg’s Michelle Jamrisko reported that other economic indicators showed that inflation was unchanged and the threat from the U.K. also eased:

Stocks rose, giving the Standard & Poor’s 500 Index its biggest gain of the year, after the retail sales report. The S&P 500 added 1.1 percent to 1,838.88 at the close in New York. The S&P Supercomposite Retailing Index rose 0.7 percent.

Another report today showed the costs of goods bought from abroad were unchanged in December, indicating little inflation pressure from overseas. The reading for the import-price index followed a 0.9 percent drop in November, according to figures from the Labor Department. Excluding fuel, prices fell 0.1 percent, the first decline since August.

Inflationary pressures also abated in the U.K., where consumer prices rose 2 percent in December from a year earlier, cooling to match the Bank of England’s target for the first time in more than four years, data from the Office for National Statistics showed today in London.

The U.S. retail sales report showed seven of 13 major merchant categories realized gains last month. The increases were paced by a 2 percent jump at grocery and beverage stores that was the biggest since October 2006.

The headline on Jayne O’Donnell’s story for USA Today said the holiday numbers presented a “mixed picture”:

But there’s disagreement over how positive the news is for retailers. Ken Perkins, president of stock analysis company Retail Metrics, says the season delivered “holiday coal in most retailers’ stockings.”

Of 29 retailers that have recently issued earnings guidance for their current quarter, which includes the holiday period, Perkins said 25 of them were negative. He attributes retailers’ problems to a shorter holiday shopping season, deeper discounts and a lack of must-have items.

The government’s results for December included the increasingly busy Monday after Thanksgiving, known as Cyber Monday, which fell on Dec. 2 this year. Most retailers feature deep online discounts that day.

The Commerce Department also lowered its estimated sales increase for November to 0.4% from 0.7%. October’s increase was cut to 0.5%, down a tenth of a percentage point.

The markets liked the news, which makes it a small victory for those betting on the economy’s continued recovery. While it’s only one month’s worth of data, it’s a good start to the year.