U.S. consumers unexpectedly curbed their Christmas spending in December and more people filed claims for jobless benefits last week, casting fresh doubts on the durability of the economic recovery once government support fades.
The Commerce Department said on Thursday retail sales fell 0.3 percent last month, the first decline since September, as consumers spent less on vehicles and an array of other goods during the holiday shopping month.
Analysts had expected an increase of 0.5 percent, but disappointment was tempered by upward revisions to prior months' data. November sales were revised to show a 1.8 percent gain from an initially reported 1.3 percent increase, and October sales were bumped up a touch as well.
A separate report from the Labor Department showed initial claims for state unemployment benefits rose 11,000 to 444,000 last week, higher than the 437,000 claims analysts surveyed by Reuters had forecast.
Will consumers be able to take over from the government and replace demand that has come so far from government spending? If the consumer is unable to do that, it's going to pose some significant risks to the recovery story, said Boris Schlossberg, director of research at GFT Forex in New York.
Bets that business spending would bolster profits in the technology sector helped to shift the attention on Wall Street from the weak economic data, giving U.S. stocks a lift. Prices for U.S. government debt, a safe haven in times of economic uncertainty, surged. The U.S. dollar fell versus the yen.
Discounting appeared to be a factor weighing on the government's dollar measure of sales. Auto receipts dropped 0.8 percent, even though industry data had shown unit vehicle sales rose in December.
The report also conflicted with data from general merchandise retailers who reported strong December sales volumes. Some analysts blamed the surprise fall in sales on a snow storm that struck a week before Christmas.
DEEP PRICE DISCOUNTS
There is an unusual amount of noise in these numbers related to ... major discounting by retailers, electronics suppliers and auto companies at the end of the year in order keep inventories lean, said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts.
For the Federal Reserve, which has pledged to keep its benchmark interest rate near zero for an extended period, the latest figures suggested that both consumer demand and the job market were still under considerable pressure.
It probably pushes off the date of any normalization of interest rates, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
The Congressional Budget Office said the U.S. unemployment rate, which stood at a 26-year high of 10 percent in December, would likely not drop below 8 percent before 2012.
President Barack Obama faces pressure to find new ways to spur job creation and economic growth as government stimulus spending begins to taper off and the Fed winds down its emergency lending and asset-buying programs.
But the labor market is showing some signs of healing. The four-week moving average of jobless claims, which smoothes out weekly variations, dropped for a 19th straight week, to 440,750 -- the lowest level in nearly 1-1/2 years.
Stephen Stanley, chief economist at RBS, said weak December retail sales set the stage for a poor performance in January.
Stores were quite conservative in stocking goods for the holiday season and many were left with little to sell by the end of December. January is typically a clearance month, and this year, there is not much left to clear, said Stanley.
Excluding motor vehicles and parts, retail sales fell 0.2 percent in December, the biggest decline since July. So-called core sales, which exclude autos, gasoline and building materials, fell 0.3 percent. This category closely reflects the consumer spending component of the government's GDP reports.
A second report from the Commerce Department showing inventories increased 0.4 percent in November bolstered views the economy picked up steam in the fourth quarter.
While the economy remains on a steady recovery path, the housing market -- the main trigger of the economic downturn -- continues to show signs of stress.
The nation closed out 2009 with a record number of foreclosure actions and is poised to set a fresh record this year, real estate data company RealtyTrac said.
According to the group, 2.8 million properties with a mortgage received a foreclosure notice last year, up 21 percent from 2008 and 120 percent from 2007.
For a graphic comparing retail sales and personal spending, see: http://graphics.thomsonreuters.com/0110/US_RTLSLS0110.gif
For a graphic comparing new jobless claims and the four-week average, see: http://graphics.thomsonreuters.com/0110/US_IJCB0110.gif
(Additional reporting by Glenn Somerville, Emily Kaiser in Washington and Steven C Johnson in New York)