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Consumers were busy in December

January 13, 2007|From Reuters

WASHINGTON — U.S. retail sales were surprisingly strong last month as consumers snapped up large-screen TVs and other electronic products, a sign of economic resilience that poured cold water on the idea of interest rates dropping anytime soon.

Retail sales rose by a larger-than-expected 0.9% in December and were even stronger than anticipated when autos were stripped out, suggesting that consumers were willing to open their wallets despite slowing housing markets, a Commerce Department report showed Friday.

The seasonally adjusted December gain in retail sales, which covers the crucial holiday shopping season, was the largest since July. Analysts polled by Reuters were expecting a 0.6% rise.

A 1% jump in sales aside from autos, considered a more reliable indicator of core household spending, was well ahead of the 0.5% gain that analysts were expecting. It was the sharpest climb since January of last year.

Electronics and appliance stores posted a 3% gain in sales, propelled by high-end items such as video game systems and plasma televisions.

However, November's sales data were revised down to a 0.6% gain overall from a previously reported 1% increase. Excluding autos, the gain was 0.7%, down from an earlier reported 1.1%.

"Consumers are hanging in there surprisingly well despite the beating they are getting from home values and inability to extract home equity values," said Christopher Low, chief economist at FTN Financial in New York.

The Fed has kept benchmark interest rates steady at 5.25% since June and has remained focused on inflation risks. Fed officials have forecast that economic growth at a slower pace than the economy's full potential will reduce inflation to more comfortable levels.

Analysts said warm weather, lower gasoline prices and low unemployment spurred consumer enthusiasm.

"It seems that everything we heard about flat-screen television sets is certainly true. The possibility of a Fed rate cut in the first quarter has melted away along with everything else on the East Coast," said Mark Vitner, a senior economist at Wachovia Securities in Charlotte, N.C.

Another report emphasized that some inflation risks remain. Prices of imported goods jumped a stronger-than-expected 1.1% in December, with much of the increase from higher petroleum costs. When oil was excluded, import prices rose 0.4%.

Retail sales for all of 2006 advanced by 6% from 2005, the smallest year-over-year gain since a 4.3% increase in 2003, the government said.

Sales at auto and parts dealers were up 0.3% in December after a revised unchanged reading in November, which was originally reported as a 0.9% gain.

Sales at gasoline stations rose 3.8%, and sales at furniture and home furnishing stores also increased.

Meanwhile, sales at building material and garden supplies stores declined 1.1%.

A separate Commerce Department report showed that business inventories rose a higher-than-expected 0.4% in November, and business sales were up 0.5%.

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