US consumers increased their spending at retail businesses in December, buying more cars, furniture and clothing.
Steady job growth and lower petrol prices kept consumers shopping for the holidays, despite worries about potential tax increases.
The Commerce Department said today that retail sales rose 0.5% in December from November, slightly better than November's 0.4% increase and the best showing since September.
A 1.6% jump in sales of cars and car parts led all categories. Car firms closed out their best sales year since 2007.
Total retail spending was even stronger when factoring out a drop in petrol prices. Excluding a 1.6% decline in petrol station sales, retail spending increased 0.8%.
The retail sales report is the US government's first look at consumer spending, which drives roughly 70% of economic activity.
The December increase suggests consumers were not too worried about tense negotiations to resolve fiscal issues. Congress and the White House ultimately reached a deal on January 1 that prevented income taxes from rising for most households.
Earlier this month, major retailers reported that a last-minute surge in spending helped salvage the crucial holiday shopping season. Retails can often make as much as 40% of their annual revenue during the final two months of the year.
In addition to strong car sales, the government report showed consumers spent 1.4% more at furniture stores, 1.4% more at health and personal care shop, and 1% more at specialty clothing stores.
Sales were flat at general merchandise stores, a category that department stores such as Macy's and big retailers such as Wal-Mart and Target. But that followed a 0.8% decline in November. Still, 2012 ended as the worst year for retail sales growth since the Great Recession ended more than three years ago.
Retail sales rose just 5.2% in 2012, which is slower than the 7.9% growth in 2011 and 5.6% growth in 2010.
2013 could be even weaker because lawmakers and President Barack Obama allowed a two-year reduction in Social Security payroll taxes to lapse. Most Americans will start seeing less money in their paychecks this month, which is likely to dampen retail sales in 2013 and weigh on overall economic growth.
The economy grew at an annual rate of 3.1% in the three months from July to September. But most economists believe growth slowed to below 2% in the three months from October to December, in part because of expected weakness in consumer spending.
Income growth remains weak, constraining the amount that consumers can devote to increased spending. Job growth has been steady, although unemployment is still high at 7.8%. In December, employers added 155,000 jobs, roughly matching the monthly average in 2011 and 2012.
The US economy has shown some signs of improvement. The once-battered housing market is recovering, which should lead to more construction jobs in the coming months. A gauge of US service firms' business activity expanded in December by the most in nearly a year.
