U.S. consumers curbed their Christmas spending in December and more people filed claims for jobless benefits last week, casting fresh doubts on whether the economic recovery can last once government support fades.
The Commerce Department said on Thursday retail sales fell 0.3 percent last month, the first decline in three months, as consumers spent less on vehicles and an array of other goods during the holiday shopping month.
November sales were sharply revised up to a 1.8 percent gain and October sales were bumped up a touch as well. Financial markets had expected retail sales to gain 0.5 percent last month.
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 that analysts surveyed by Reuters had forecast.
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 Federal Reserve winds down its emergency lending and asset-buying programs.
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 global recovery story, said Boris Schlossberg, director of research at GFT Forex in New York.
U.S. stocks were slightly higher on Thursday as optimism about technology bellwether Intel's quarterly results offset the surprise drop in sales last month. Prices of U.S. government debt, seen as a safe haven in times of economic uncertainty, added to gains.
While the December sales data disappointed, economists said the upward revisions to prior months meant expectations that GDP grew at a 4 percent annual rate or better in the final three months of the year were likely on target.
For the Fed, 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.
A separate report from the Labor Department showing import prices were unchanged in December pointed to tame inflation, providing even more incentive for the Fed to keep rates steady. The Fed holds its next policy-setting meeting in late January.
Compared to December 2008, sales rose 5.4 percent but fell 6.2 percent for the whole of 2009.
Motor vehicle purchases fell 0.8 percent in December from the previous month, while sales at electronics and appliance stores dropped 2.6 percent.
The data, coming in the wake of a report last week showing a surprise drop in non-farm payrolls in December, could add to worries that the economic expansion that started in the third quarter of 2008 could falter once government stimulus ends.
A second report from the Commerce Department bolstered views the economic growth pace quickened in the fourth quarter. Business inventories increased 0.4 percent after gaining 0.4 percent in October the department said.
Economists polled by Reuters had expected a 0.2 percent rise in November. Inventories are a critical component of gross domestic product changes over the business cycle.
Stubbornly high unemployment remains the weakest link in the recovery from the worst economic downturn since the 1930s. Job worries are expected to constrain consumer spending, which normally accounts for more than two-thirds of economic activity.
But the labor market is showing some signs of healing. The four-week moving average of jobless claims, which smooths out weekly variations, dropped for a 19th straight week, declining 9,000 to 440,750, Labor Department data showed.
That was the lowest level for the four-week average of claims in nearly 1-1/2 years, since it was at 440,250 at the end of August 2008.
Excluding motor vehicles and parts, retail sales fell 0.2 percent in December, the biggest decline since July, after rising 1.9 percent the prior month. Economists had expected a 0.3 percent increase.
Core retail sales, which excludes autos, gasoline and building materials, fell 0.3 percent after rising 0.9 percent in November.
The U.S. housing market is still suffering from the downturn. 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 on Thursday.
It said 2.8 million properties with a mortgage received a foreclosure notice last year, up 21 percent from 2008 and 120 percent from 2007.
(Additional reporting by Glenn Somerville; Editing by Chizu Nomiyama.)