Retail sales rose more than forecast in December to end 2012 on a positive note, indicating Americans may be able to rise above Washington’s budget rancor to keep contributing to economic growth.
Purchases climbed 0.5 percent, the biggest gain in three months, after a revised 0.4 percent increase in November that was larger than previously reported, according to Commerce Department data issued today in Washington. Another report showed wholesale prices retreated more than forecast last month to cap the smallest annual gain in four years.
An improving job market, a rebound in housing, lower gasoline prices and discounting by chains such as Macy’s Inc. will give households the means to keep shopping after the holidays. Consumers need the support as they deal with a tax-induced drop in take-home pay and warnings from President Barack Obama that the economy will suffer if Congress fails to raise the debt limit and agree on budget cuts.
“It looks like households are saving us from a lot worse outcome for the economy,” said Jonathan Basile, a U.S. economist at Credit Suisse in New York. “The first quarter is going to be about adjusting to higher taxes and taking home less pay. It doesn’t mean the end of the expansion.”
Stocks fell, extending yesterday’s decline in the Standard & Poor’s 500 Index, as concern about discussions on raising the debt ceiling intensified. The S&P 500 fell 0.2 percent to 1,467.85 at 11:34 a.m. in New York.
Elsewhere, Germany’s economy, Europe’s largest, probably shrank in the final quarter of 2012, the Federal Statistics Office in Wiesbaden said today in a preliminary estimate.
The median forecast of 83 economists surveyed by Bloomberg called for a 0.2 percent increase in U.S. retail sales. Estimates ranged from a drop of 0.3 percent to a gain of 0.8 percent. The reading for November was revised from an initially reported increase of 0.3 percent.
For all of 2012, retail sales climbed 5.2 percent after a 7.9 percent gain in the prior year, according to the Commerce Department’s report.
Nine of 13 major categories showed an increase in demand last month, led by a 1.6 percent rise at auto dealers and a 1.4 percent increase at furniture stores.
General Motors Co. and Ford Motor Co., the two largest automakers by U.S. sales, exceeded analysts’ estimates and forecast total deliveries will keep rising in 2013. Cars and light trucks sold at a 15.3 million annual pace in December after 15.5 million in November, the best two months since early 2008, according to data from Ward’s Automotive Group.
“Both the economy and the industry have a bit of underlying momentum that we expect to continue,” Mark Reuss, president of GM North America, said on a Jan. 3 conference call with analysts. “With the fiscal cliff concern somewhat out of the way, I think we’ll see people beginning to make more decisions knowing what the tax status is.”
The political wrangling continues this year as Obama yesterday vowed he won’t negotiate over raising the government’s debt ceiling. He offered to deal on a separate track with the spending cuts demanded by Republicans.
The debt limit has been periodically raised since its creation in 1917, when Congress and President Woodrow Wilson authorized the Treasury to issue long-term securities to help finance entry into World War I. Since 1960, Congress has raised or revised the limit 79 times, including 49 times under Republican presidents, according to the Treasury Department.
The last time Congress fought over raising the ceiling, Obama signed an increase on Aug. 2, 2011, the day that Treasury warned U.S. borrowing authority would expire. Standard & Poor’s cut the nation’s credit rating.
Still, U.S. Treasury bond investors -- who most directly bear the risk of any government default -- haven’t shown alarm over political fights ultimately resolved in Washington. Yields on 10-year Treasury notes declined to 2.56 percent on Aug. 5, 2011, the day of the S&P downgrade, and continued to fall.
Yields, a benchmark for everything from mortgages to corporate borrowing costs, are down from more than 5 percent in 2007, before the financial crisis of 2008.
Other figures today showed wholesale prices dropped in December for a third month and manufacturing in the New York area contracted in January for a sixth straight time.
The producer price index declined 0.2 percent following a 0.8 percent decrease the prior month, according to the Labor Department. Economists projected a 0.1 percent fall, according to the median of 77 estimates in a Bloomberg survey. For all of 2012, prices paid by companies climbed 1.3 percent, the smallest advance since a drop in 2008 and compared with an average 3.4 percent gain over the prior decade.
A global slowdown last year from Europe to China helped check input costs. The reduced inflationary pressures mean Federal Reserve policy makers can keep adding stimulus to spur growth and employment without triggering a surge in prices.
“We’re not really seeing any major inflation pressures out there, no matter where you look -- labor market, imports, raw-material prices,” said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida. “It looks like inflation is still going to be at or below the Fed’s comfort range,” which suggests “they can keep the gas pedal all the way down.”
The Federal Reserve Bank of New York’s general economic index fell to minus 7.8 from a revised minus 7.3 in December, another report today showed. Readings of zero are the dividing line between contraction and expansion in the region covering New York, northern New Jersey and southern Connecticut.
Retailers attracted shoppers in December with last-minute discounts on holiday gifts. Macy’s, Gap Inc. and Nordstrom Inc. reported December same-store sales that topped analysts’ estimates. A boost to household wealth from stock market gains and rising home values also is helping underpin demand.
Filling-station sales dropped 1.6 percent, as cheaper gasoline held back receipts. The Commerce Department’s retail sales data aren’t adjusted for prices. A gallon of regular gasoline at the pump averaged $3.30 in December, the lowest level in a year and down 14 cents from a month earlier, according to AAA, the biggest U.S. motoring group.
Purchases excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, climbed 0.6 percent after a 0.5 percent increase in the previous month.
The fiscal pact passed by Congress on Jan. 1 avoided sweeping tax increases and made permanent George W. Bush income-tax cuts for 99 percent of Americans. At the same time, the agreement let the payroll tax used to pay for Social Security benefits return to the 2010 level of 6.2 percent from 4.2 percent. That reduces the paycheck by about $83 a month for someone who earns $50,000.
“Consumers continue to spend at a decent pace,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. “The payroll tax will have a modest impact on spending. We need faster job and income growth to allow the consumer to shift into higher gear.”
Payrolls rose by 155,000 workers last month after a 161,000 advance in November, and the unemployment rate held at 7.8 percent, matching the lowest since December 2008. Hourly earnings climbed 0.3 percent on average for a second month, the biggest back-to-back gain since the economic recovery began in mid-2009.