Retailers' sales slipped in December

The U.S. Commerce Department delivered the final verdict on holiday spending on Thursday, releasing data that showed sales dropping off unexpectedly in December despite improving from the year before.

Total retail sales fell 0.3 percent from November to December, with a particularly large decline in sales of consumer electronics. Excluding autos, gas and restaurants, sales dipped 0.5 percent, according to an analysis by the National Retail Federation, a trade group.

"Certainly, the consumer is weaker than expected," said Ned Douthat, vice president of Ockham Research, a financial research firm. He called the results "a pretty big disappointment."

December is a critical month for the retail industry, the culmination of the Christmas shopping season and traditionally the biggest sales month of the year. The drop in spending underscores just how fragile consumers remain, particularly as unemployment stays in the double digits.

Industry analysts had been hoping for a positive report after encouraging sales reports last week from about three dozen of the nation's biggest retail chains. They showed sales at established stores were up 2.8 percent from a year before, and several companies even raised their earnings forecasts on the good news.

But those results compared December sales at established stores to those of December 2008, when the fallout from the financial crisis had left Americans shellshocked. When the government's sales data for December are compared with a year ago, they show total retail sales jumped 5.4 percent, more in line with the increases individual retailers reported last week.

Industry analysts also noted that part of the monthly sales decline was simply a numbers game: In issuing the results, the Commerce Department also revised November's sales figures significantly upward to a 1.8 percent increase. The higher November results made December look weaker in comparison.

Consumer electronics stores had the biggest drop, falling 2.6 percent in December compared with the previous month after a strong showing in November. Sales were down 0.6 percent at clothing stores despite colder weather -- and heavy snow in the Washington region and the Midwest. General merchandise stores declined 0.8 percent, though department stores were flat.

"The consumer is still struggling in a weak environment," said Rosalind Wells, chief economist for the National Retail Federation. "It's getting better, but it's a slow process."

There were a few bright spots. Beleaguered furniture and home goods stores got a 0.3 percent boost in December, while sporting goods, book and music stores rose 1.6 percent. Sales at nonstore retailers, such as online and catalogue vendors, rose 1.4 percent.

According to the National Retail Federation, core retail sales rose 1.1 percent for November and December compared with last year, better than the 1 percent decline that the trade group had forecast. Still, Wells said that the increase amounted to a lukewarm holiday.

"I don't think they were expecting any great shakes," she said of retailers.

Retailers had planned conservatively for the holiday season. The industry hired about 547,400 workers from October to December to staff for the holiday rush, according to consulting firm Challenger, Gray & Christmas, about 24 percent less than the pre-recession average but well above the number hired in 2008. In addition, many companies reduced the amount of merchandise on the shelves to avoid the rock-bottom markdowns seen the year before.

"Retailers had planned long in advance for a soft holiday season," said Madison Riley, managing director of retail consulting firm Kurt Salmon Associates. "Revenue was expected to be modest at best."