Credit Commentary

Retail Sales Rise in November

By Zarana on Monday, December 14 2009

Consumers stepped up their spending in November and grew more optimistic this month, unexpectedly retail sales rose more than the forecast. But stores remain worried that they may have to offer deeper discounts than planned, perhaps as early as this weekend because of mediocre sales so far.

Consumer spending normally accounts for more than two-thirds of U.S. economic activity, but households' spending power has been curtailed by high unemployment. Most economists have been concerned that high unemployment could depress spending and drag down an economy struggling to emerge from the worst recession since the 1930s.

However, the increase in November retail sales is encouraging. It implies that households continued to spend going into the key Christmas shopping period. This rise in November Sales confirms that the economy is sustaining positive growth in the second half of this year, but the pace is relatively moderate given the extent to which activity had dropped through the recession.

Retail sales rose 1.3% last month, the largest advance since August. It was the second straight monthly gain and easily beat market expectations for a 0.7% increase. Sales in November were boosted by strong receipts from gasoline stations, increased purchases of motor vehicles and parts, building materials and electronic goods, among others.

Despite slightly lower gasoline prices at the end of November from the end of October, sales at service stations surged 6%, the largest increase since June. Excluding motor vehicles and parts, retail sales rose 1.2%, the largest increase since January, after being flat in October. Economists had expected a 0.4% gain. The core retail sales, which exclude autos, gasoline and building materials, rose 0.6%, a fifth straight monthly advance.

Shoppers crowded malls for deep discounts over Thanksgiving weekend, but many consumers have been slow to return. Some analysts say the industry could suffer its second straight year of holiday-season sales declines.

Sporting goods shops, food stores and electronics retailers all enjoyed gains in November, while clothing and furniture stores saw sales slip. The surge in sales at electronics stores was likely due to aggressive discounting at retailers and that such a performance might not be sustainable.

The disappointing business comes as stores, from Toys R Us to J.C. Penney, have been expanding hours and offering discounts to attract shoppers during the traditional lull after Thanksgiving. But most stores have stopped short of drastic price slashing. Many are counting on a strong sales rebound this weekend. If that does not happen, they may have to cut prices further.