U.S. retail sales rose more than expected in December as holiday shoppers appeared to shrug off fiscal-cliff worries, though future gains could be limited as workers' paychecks are set to shrink.
Retail and food-service sales increased 0.5% in the final month of 2012 to a seasonally adjusted $415.70 billion, the Commerce Department said Tuesday. Economists surveyed by Dow Jones Newswires had expected just a 0.2% rise.
Consumers shelled out more on autos, furniture, personal care and dining out, but sustaining retail growth will be a challenge as payroll taxes increase for most Americans this month.
"The fourth quarter ended on a stronger footing than previously thought," said Dan Greenhaus, chief global strategist at BTIG LLC. However, "nothing in today's data does anything to dispel the notion that consumer spending in the first half of 2013 should be quite weak," he added.
In a last-minute fiscal-cliff deal that held income taxes steady for all but the highest earners, Congress allowed a temporary cut in Social Security withholdings to expire, meaning that Social Security taxes have reverted to 6.2% of salary from the temporary 4.2%. Smaller paychecks could hamper future consumer spending, which accounts for about two-thirds of demand in the U.S. economy.
But in December, consumers continued to buy despite surveys that showed consumer confidence was waning. Motor vehicles and parts sales rose 1.6%. Excluding autos, retail sales were up 0.3%. Gasoline sales fell during the month as pump prices retreated.
Declining gasoline and food costs helped push wholesale prices lower, a Labor Department report showed Tuesday.
The producer price index, which measures how much manufacturers and wholesalers pay for finished goods, decreased a seasonally adjusted 0.2% in December, as food prices fell 0.9%, and overall energy costs, which include gasoline, slid 0.3%. Excluding volatile food and energy costs, producer prices increased 0.1%. Economists had forecast overall producer prices to fall 0.1%.
Meanwhile, the Federal Reserve Bank of New York's Empire State Manufacturing Survey released Tuesday showed manufacturing activity in the region is still contracting.
The Empire State's business-conditions index fell to -7.78 from a revised -7.30, in December. A reading below zero suggests contraction. Economists had expected the latest index to improve to -2.0. The Empire subindexes were almost all in negative territory this month, a bad omen for the factory sector at the start of the new year.
"We will see if the other January surveys reported over the next few weeks echo the weakness of the Empire State survey or if they give credence to the idea that the manufacturing sector has gained some traction lately," JPMorgan Chase economist Daniel Silver said.
Finally, a separate Commerce Department report Tuesday showed U.S. business inventories advanced 0.3% to a seasonally adjusted $1.622 trillion in November, and sales rose 1.0% to a seasonally adjusted $1.272 trillion.
Increasing stocks at auto dealerships and furniture stores helped drive the inventory gain.