Retail sales for the month of December rose 1.2 percent according to recently released figures from the Department of Commerce. Leading the increase in retail sales was a 5 percent gain in automobile sales. Although many had hoped for a dramatic rise in sales over the Christmas season, the 1.2 percent gain was sufficient to keep the economy growing. For 2002, retail sales were up 3.4 percent, the smallest gain since 1993. Consumer spending accounts for two-thirds of Gross Domestic Product (GDP), so the outlook for consumer spending is critical to the economic recovery.

Retailers were not positive about December sales. Except for the growth in auto sales, retail sales were virtually unchanged last month, and department store, sporting-goods outlets and food and beverage store sales all decreased. However, retail sales varied significantly for different products. For example, sales at electronic and appliance stores jumped by 6.3 percent, drugstore sales were up 8 percent and sales at furniture outlets increased by 4.2 percent.

It is difficult to draw conclusions from an examination of retail sales data, especially those in recent months. Economists believe that fourth quarter spending will be 2 percent, significantly lower than the 4.2 percent growth recorded in the third quarter. Retailers frequently do not make adjustments for falling prices when reporting sales, thereby masking some of the underlying trends in sales. According to one economist, adjusting sales data for price changes would reveal that retail sales rose 5 percent for all of 2002, instead of the 3.4 percent that was reported.

There are some bright notes, however. Compared with December 2001 data, retail sales were 4.6 percent higher this year: the largest yearly increase since 1999. Throughout 2002, consumers purchased a record 6.5 million homes, and automobile sales took a jump in December. Consumer purchases of homes and cars likely caused some of the reduction in sales of other goods and services.

(Updated April 3, 2003)