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Retail sales rise and inflation remains tame

Retail sales rose for the sixth straight month in December, as 2010 ended on an upbeat note after the economy crawled out from the deepest recession since the Great Depression.
Image: Economy
Shoppers ride the F-train, in New York. Retail sales rise for the sixth month in December, capping a rebound year following a deep recession.Mary Altaffer / AP
/ Source: staff and news service reports

Retail sales rose for the sixth straight month in December, the government reported on Friday, as 2010 ended on an upbeat note after the economy crawled out from the deepest recession since the Great Depression.

The economy seems likely to maintain some momentum in 2011: the output of the nation's factories, mines and utilities rose last month by the largest amount in five months and businesses added to their inventories for the 11th consecutive month in November.  

Yet homes and businesses remain troubled by unemployment and a struggling housing market that have kept consumer prices in check.

Sales at U.S. retailers rose slightly less than expected in December, but retail sales for all of 2010 reversed two years of contraction and posted the biggest gain in more than a decade, a government report showed on Friday.

The National Retail Federation said Friday that U.S. retailers enjoyed their best holiday sales in six years, rising 5.7 percent for a total of $462 billion in sales over November and December. Revenue at stores open at least a year rose 3.8 percent from Oct. 31-Jan. 1, according to an index compiled by the International Council of Shopping Centers.

The Commerce Department said total retail sales climbed 0.6 percent in December, advancing for the sixth straight month as sales declines at electronics and general merchandise stores were offset by gains in gasoline and building materials sales. Analysts polled by Reuters were expecting sales to gain 0.8 percent.

Excluding autos, sales rose 0.5 percent. Analysts had forecast a 0.7 percent increase.

"Things are going pretty well on the consumer side, and it's not just discounts everywhere. The three-month moving average through December is really strong and not just motor vehicles. There is also some interest in building materials so people want to fix up their homes," said Kurt Karl, chief economist for Swiss Re in New York.

"Despite the volatility in jobs numbers, we are gathering momentum. We are having a hard time keeping up with consumer demand and export demand. I can't see why it would flop on employment at this point. We should see 200,000 a month in payroll increase easily by year-end," Karl said.

But the sales gains last month were smaller than the previous two. Retailers began their promotional efforts much earlier this year, which may have dampened last month's sales. A huge snowstorm in the Northeast after Christmas also cut into demand.

The Federal Reserve reported Friday that activity at factories, mines and utilities increased 0.8 percent last month. Industrial production showed gains in every month but one in 2010.

Overall industrial activity has risen 11 percent since hitting its recession low in June 2009. But it is still 6 percent below its peak reached in September 2007.

Inventories rose just 0.2 percent in November, the smallest advance since a similar gain last May, the Commerce Department reported Friday. Sales rose 1.2 percent in November after an even bigger 1.5 percent October increase.

The November rise in inventories pushed them to $1.42 trillion, up 7.7 percent from the recent low of $1.32 trillion hit in September 2009.

Consumer prices
Meanwhile, consumer prices rose last month as the cost of gas increased by the largest amount since June 2009. But outside of energy costs, there was little sign of widespread inflation.

The Labor Department says the Consumer Price Index rose 0.5 percent in December, the largest increase in 18 months. About 80 percent of the increase was due to an 8.5 percent rise in the gasoline index, also the sharpest increase in 18 months. Food prices ticked up 0.1 percent in December.

Last year, the index rose by 1.5 percent, down from 2.7 percent in 2009.

Excluding the volatile food and energy categories, the so-called core index moved up 0.1 percent in December for the second straight month. In the past year, the core index rose by only 0.8 percent.

That's near a record low of 0.6 percent set earlier in 2010 and the smallest December-to-December increase in the history of the index, which dates to 1958.

Inflation could tick up this year as prices for commodities such as oil, grains and cotton have risen sharply in recent months. Grain prices hit a 2 1/2 year high earlier this week after the government said corn, wheat and soybean harvests would come in below previous estimates. Oil prices have risen due to strong demand in large, fast-growing developing countries.

Companies could be forced to pass on some of the higher raw material costs to consumers. So far, there is only limited evidence that that is occurring.

The Fed said in a survey released Wednesday that "competitive pressures" had limited the ability of companies to pass on higher prices.

Fed Chairman Ben Bernanke told Congress last week he expected inflation in the United States will "likely to be subdued for some time."

The Federal Reserve would like to see prices rise a bit faster than they are now. Its preferred range for the core consumer index is roughly 1.5 percent to 2 percent. Figures below that carry the threat of deflation, a widespread and prolonged downturn in prices, wages and home values.

Fears of deflation arose last summer, after consumer prices dipped for three straight months. But the they have risen for six straight months since then.