Dire predictions of a disastrous holiday sales season failed to materialize as sales at U.S. retailers slipped a smaller-than-expected 0.1 percent in December, helped by resilient consumers who kept buying in the face of the recession and rising unemployment.
The tiny decline reported by the Commerce Department Tuesday mainly stemmed from a 4.2 percent drop in sales at gasoline stations, reflecting lower prices at the pump.
Sales of cars inched down by a tiny 0.1 percent, following a steep 10.3 percent drop in November, as free-financing deals and other incentives waned.
Analysts polled by Reuters had expected a drop of 1.4 percent in overall retail sales in December and 0.1 percent excluding autos.
While sales of sporting goods and building supplies declined, many other categories, including home furnishings, electronics and appliances, and clothing, saw sales post solid gains in December.
November sales fell by a record 3.0 percent overall and were off by 0.2 percent excluding cars. Previously, November sales had been reported as having fallen by 3.7 percent overall and 0.5 percent excluding autos.
The December figures, along with upward revisions to November sales data, raise the possibility consumer spending, which accounts for two-thirds of economic activity, held up relatively well in the fourth quarter. If that trend continues, it would help businesses work off bloated inventories and encourage them to invest again in new equipment, helping the U.S. economy recover from the recession that began in March.
Tuesday's retail sales report "would seem to fit with what the Fed officials were saying last week about the encouraging recovery in consumer spending,'' said David Orr, chief economist at Wachovia Securities.
"What they and we are concerned about is the staying power of that spending in 2002,'' he added.
To revive the economy, which fell into recession in March, the Federal Reserve cut interest rates 11 times last year. That pushed the prime rate, a benchmark for many consumer and business loans, to the lowest level since November 1965.
Some analysts are predicting the Fed's rate reductions will set the stage for a recovery in the first half of this year.
But whether that timetable is accurate depends in part on whether consumers - whose spending accounts for two-thirds of all economic activity - reduce spending in the coming months.
The nation's unemployment rate hit a six-year high of 5.8 percent in December and many economists say the jobless rate will continue to climb, peaking out at around 6.5 percent in the summer.
Economists are concerned that a worsening jobs picture could jolt Americans' confidence, causing consumers to sharply pull back spending, which could delay a rebound or make for a weak recovery.
For all of 2001, retail sales rose by 3.4 percent. While that was a big moderation from the 7.6 percent increase in 2000, it showed that consumer spending didn't collapse. Still, the 3.4 percent increase was the weakest showing since the government began tracking retail sales using the current classification system in 1993.
Tuesday's report showed that sales at clothing stores rose by 2.6 percent in December as stores heavily discounted merchandise to lure shoppers. In November, such sales fell by 1.2 percent.
Sales of electronics and appliances rose by 2 percent, following a 4.1 percent increase. Sales at bars and restaurants rose by 1.8 percent, up from a 1 percent increase in November.
At general merchandise stores, including department stores, sales grew by 0.5 percent, after a slim 0.1 percent rise. Sales at health and beauty stores rose by 0.4 percent, following a 0.5 percent decline.
Sales at sporting goods stores and hobby shops declined by 3.3 percent in December, after a 3.7 percent advance. Sales of building and garden supplies fell by 1.9 percent, after a 0.4 percent decrease.
The 0.1 percent drop in overall retail sales in December came after a revised 3 percent decline, a smaller decrease than the government previously reported. Many economists were expecting a 1.4 percent decline in sales in December.
Excluding sales at gasoline stations, overall retail sales rose 0.2 percent in December.
Last week, December sales figures released by the nation's largest retailers showed that discount and moderately priced chains, such as Wal-Mart, achieved better-than-expected gains.
A surge of last-minute shopping saved retailers from a disastrous holiday performance, but the heavy discounting that fueled it was expected to hurt fourth-quarter profits.
Reuters and the Associated Press contributed to this report.