Staff Report
Published Jan. 14, 2011

December retail sales rose 0.6% driving sales to the biggest annual increase since 1999 and above pre-recession levels, Well Fargo Securities reported today.

The jump in year-over-year growth in retail sales received some help from the fact that the level of retail sales was near its lowest level in this cycle at the outset of the year. Still, this strong showing in December is consistent with analysts’ outlooks for strong consumer spending growth supporting fourth quarter GDP growth, the company said.

Unit motor vehicle sales to dealers have been strong the past few months, and retail sales of motor vehicles and parts picked up 1.1%, suggesting that the increase in sales at the wholesale level is being met with increased buying activity on dealer lots.

Price factors play a role in the report as well. The price of a gallon of gasoline rose from $2.85 to roughly $3 on average between November and December. This likely supported the 1.6% monthly increase in sales at gas stations, Wells Fargo said.

Elsewhere the gains were fairly broad coming from a 2% gain in building material sales, a 1.6% pickup in sales of health and personal care goods and a 1% increase in furniture sales.

Retail sales are adjusted for holiday day changes, which may have pulled some of December's sales into November. This dynamic is most evident in stores generally associated with holiday shopping. Department stores saw a 2.8% jump in November sales, followed by a 2.9% drop in December. Clothing stores reported November experienced a  2% spike in sales followed by a 0.2% dip in December. The trend in retail sales is more positive. The average gain in the past two months is 0.7 percent—a healthy growth rate, Wells Fargo said.

According to the latest measure of income from the personal income and spending report, consumers who were able to hang on to their job during the last year are making more money than they were at the beginning of the year. With the saving rate much higher than it was at the outset of the recession, some consumers may have splurged on holiday gifts.

We expect spending to continue to grow in 2011, but likely at a slower pace than what we saw in the fourth quarter of 2010, Wells Fargo said.