A gauge of U.S. consumer spending rose more than expected in December, suggesting the economy gathered steam at the end of last year and was poised for stronger growth in 2014.
The Commerce Department said on Tuesday retail sales excluding automobiles, gasoline, building materials and food services, increased 0.7 per cent last month after a 0.2 per cent rise in November.
The so-called core sales correspond most closely with the consumer spending component of gross domestic product. Economists polled by Reuters had expected core retail sales to rise 0.3 per cent in December.
The increase suggested consumer spending accelerated in the fourth quarter from the third quarter’s 2 per cent annual pace. It was also the latest indication of strong momentum in the economy at the end of 2013.
Though job growth stumbled in December, that was largely seen as temporary given the cold weather that gripped parts of the country during the month.
“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.
“Overall, this report supports our view that a 4 per cent annualized rise in real consumption will help to generate a decent 3.0 per cent gain in overall GDP in the fourth quarter of last year,” he added.
Fourth-quarter growth prospects were further boosted by a second report from the Commerce Department showing retail inventories, excluding autos increased 0.6 per cent in November after increasing 0.3 per cent in October.
Businesses aggressively accumulated stock in the third quarter and warehouses were left bulging with unsold stock. That left economists anticipating businesses would need to pull back, which would undercut fourth-quarter GDP growth.
It now appears some of the inventory build-up was planned and consumer spending has been accelerating.
The economy grew at a 4.1 per cent rate in the third quarter.
U.S. stocks were trading higher after the reports, while prices for U.S. Treasury debt edged down.
A stock market rally last year and rising home values have boosted household wealth, encouraging Americans to open their wallets a little bit more.
Core sales last month were lifted by a 1.8 per cent rise in receipts at clothing stores. Sales at food and beverage stores recorded their largest increase in seven years. There were also increases in online store sales.
A cold snap during the month likely contributed to holding down sales of automobiles. Receipts at auto dealers fell 1.8 per cent, the largest decline since October 2012. Auto sales had risen 1.9 per cent in November.
That limited overall retail sales to a 0.2 per cent gain in December. Retail sales increased 0.4 per cent in November.
Economists had expected retail sales to edge up 0.1 per cent last month. For all of 2013, retail sales rose 4.2 per cent.
Retail sales excluding automobiles rose 0.7 per cent, the largest increase in 10 months.
Sales of furniture, sporting goods, building materials and garden equipment and electronic appliances fell.
A separate report from the Labor Department showed import prices were unexpectedly flat in December, showing no signs of imported inflation.
Domestic inflation continues to trend lower and the lack of price pressures means the Federal Reserve will likely keep interest rates near zero for a while even as it scales back its monthly bond purchases.