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Retail sales up; PPI tame
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January 13, 2000: 12:03 p.m. ET
Retail sales surge 1.2% in December while producer prices edge up 0.3%
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - Retail sales surged during the holiday shopping season, capping the best year for retailers since 1984, while producer prices rose modestly, the government reported Thursday, suggesting the economy continues to chug along at a pace that isn't stoking inflation.
Retail sales rose 1.2 percent in December, the Commerce Department said, the strongest showing since August and above expectations. Excluding autos, sales advanced an even stronger 1.4 percent, the largest monthly gain in more than 3-1/2 years. For the year, sales gained 8.9 percent, the biggest jump since a 10 percent increase in 1984.
Separately, the Labor Department said its Producer Price Index rose 0.3 percent last month, matching analysts' forecasts and above November's 0.2 percent gain. The core rate, which excludes volatile food and energy prices, rose 0.1 percent, also in line with economists' forecasts though above the unchanged reading recorded a month before.
"These two key reports reinforce the underlying story of red-hot growth and stable inflation, which was the hallmark of the U.S. economy in 1999," said Sherry Cooper, chief economist with brokerage Nesbitt Burns. "Even amid this torrid growth rate,
inflation remains remarkably well-behaved."
Favorable market reaction
Both stocks and bonds posted gains in the wake of the news as investors concluded inflation remains subdued, at least for the time being. Tame costs on the production line typically mean stable consumer prices, since producers don't have rising expenses to pass on to buyers.
"It is magnificent that inflation continues to be low, but retail sales are smoking," Neal Soss, chief economist with CS First Boston, told CNNfn. Even so, negligible inflation likely won't stop the Federal Reserve from raising interest rates soon to cool the economic growth and ensure inflation remains tame, he said. (471KB WAV) (471KB AIFF)
Click here for CNNfn.com's special report on online retailing
Indeed, the higher-than-expected retail sales figure reflects one of the best holiday shopping seasons on record, according to brick-and-mortar retailers' same-store sales, Internet retailers' record sales figures and anecdotal evidence from analysts.
Amazon.com wrapped up its best year ever in 1999, tripling its revenues to $2.6 billion. Online auction site eBay Inc. (EBAY) and online toy seller, eToys Inc. (ETYS) also posted strong revenues, along with brick-and-mortar-owned Web sites such as barnesandnoble.com (BNBN).
Car sales gain
New car sales, which account for about one-quarter of monthly retail business, gained 0.9 percent last month after a revised 2.6 percent gain in November. Excluding autos, retail sales posted the biggest gain since a 1.5 percent rise in April 1996.
Sales of furniture and home furnishings gained 1.3 percent while sales at food stores jumped 2 percent, possibly a result of consumers stocking up on items such as water, canned goods and toilet paper as insurance against potential Y2K-related problems. Gasoline prices rose 2.5 percent after a 1 percent rise the month before.
The numbers came as investors brace for the Federal Reserve's first policy meeting of the year, a meeting at which most analysts and investors expect an inflation fighting increase in short-term interest rates. Higher rates make borrowing more expensive for consumers and businesses, slowing economic growth and keeping prices in check.
And yet inflation remains conspicuously absent. Prices paid for crude goods, or raw materials, fell 3.9 percent in December, the biggest decline in almost 1-1/2 years. In the intermediate goods category, a 14.9 percent jump in jet fuel prices helped push prices up 0.2 percent. Prices for finished energy goods rose 1.2 percent in December, though even that was a reflection of higher prices for gasoline and heating oil.
Lookin' good for CPI
For all of 1999, producer prices rose 3 percent, above the flat reading registered in 1998 and a 1.2 percent decline in 1997.
Those numbers bode well for Friday's report on consumer prices. Analysts polled by Briefing.com expect that prices for goods and services at the retail level rose at a 0.3 percent pace in December after gaining 0.2 percent the month before. Excluding food and energy, prices likely rose 0.2 percent, the same pace as November.
Even so, "the pace of economic activity is sufficiently strong to compel the Federal Open Market Committee to lift interest rates by 25 basis points at their next meeting" Feb. 1 and 2, said Steven Wood, an economist with Banc of America Securities in San Francisco.
A hint of what may come from the Fed is expected later Thursday, when Fed Chairman Alan Greenspan addresses the Economic Club of New York. It was at the same venue in 1996 that Greenspan uttered his now-famous remarks about the U.S. stock market's "irrational exuberance."
Awaiting Mr. Greenspan
Greenspan is expected to speak at 8:30 p.m. ET. The speech marks his first appearance in more than two months and his first opportunity to publicly address the pace of the economy, the record stock market gains of last year and the robust labor market - all of which are driving the U.S. economy toward its longest period of uninterrupted expansion since the 1960's. February marks the 107th consecutive month of U.S. growth.
Separately, the Labor Department said the number of newly unemployed Americans filing for state benefits was unchanged at 309,000 last week, suggesting Americans still face a solid job market. 
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