Shoppers splurged in December

NEW YORK (CNNMoney.com) -- A final burst of last-minute holiday gift shopping helped boost crucial December retail sales at chain stores, the government reported Thursday.

However, economists said last month's strength needs to be weighed against November's sales increases, which were revised lower in the latest report.

The Commerce Department said retail sales rose a better-than-expected 0.9 percent last month, compared with a revised 0.6 percent increase in November. The government had originally reported a 1 percent gain in November retail sales.

Economists surveyed by Briefing.com on average had forecast an increase of 0.7 percent for December.

Sales excluding autos and auto parts rose a much stronger-than-expected 1 percent last month compared with a revised 0.7 percent increase in November. Ex-auto sales in November were originally reported to have jumped 1.1 percent The forecast was for a 0.5 percent increase, according to Briefing.com.

Michael Niemira, retail economist with the International Council of Shopping Centers (ICSC), said he had expected some revisions to November. "But taking November and December together, the two months still look strong because December's gains even out November's lowered revisions," he said.

"There was strength across the board last month. I think it shows that the consumer is still very much alive. I've maintained that income growth was the main storyline for 2006. Consumers feel they have money and they're spending it," Niemira said.

That's important for two reasons: First, consumer spending fuels two-thirds of the nation's economy. Second, November and December are critical for the retail industry since the two-month period typically accounts for close to half of merchants' annual profits and sales.

Income growth and a stable labor market has helped offset concerns about a slowing housing market and its implications on discretionary spending.

In a report Friday, Peter Morici, an economist and professor at the Robert H. Smith School of Business at the University of Maryland, discounted worries about housing, at least for the time being.

"Although the housing market has softened since last summer, home prices are still up about 56 percent over the last five years," Morici said in the report.

"While homeowners may not expect much appreciation over the next year or so and values will fall in some cities and communities, homeowners still have a lot of untapped equity to finance additional spending," he said. "The reservoir of wealth created by the housing boom has not evaporated and is only partially spent."

Nevertheless, some retailers have struggled this holiday season. Unseasonably warm weather cut into sales at clothing sellers such as Gap (Charts) and Ann Taylor (Charts). The apparel sales slump also slowed last month at department stores chain like Sears and J.C. Penney (Charts).

But the Commerce Department report showed that clothing sales overall saw a healthy 0.6 percent increase, although department store sales rose a more modest 0.2 percent last month.

In other categories, consumer electronics sales surged 3 percent. Industry analysts attributed the impressive gain to the holiday price wars on big-ticket items such as flat-panel TVs and home computers, as well as the still strong demand for MP3 players and digital cameras.

Furniture sales rose 0.7 percent and sales at health and personal care outlets jumped a strong 1.7 percent last month. Gasoline station sales spiked 3.8 percent.

There were a few weak spots, however. Building material and garden equipment purchases fell 1.1 percent and sale at sporting goods stores, book and music stores slipped 0.1 percent.

Although January isn't typically considered a holiday month, retailers have started to include January sales in their final holiday sales tally because of gift-card redemptions that occur in the month.

Retailers record sales from gift cards only when those cards are redeemed, not when the cards are purchased.

Said Niemira, "As more consumers are opting to give gift cards for the holidays, it's also pushing a lot of money into January for after-Christmas purchases. I anticipate January will be a good month as well for retailers."

Retail execs face the chopping block

Mild weather melts profits at clothing sellers

Gap shares surge on sale speculation