Separately, U.S. business inventories rose a higher-than-expected 0.4% in November as sales
were up 0.5%, a government report showed.
The December gain in retail sales, which covers the crucial holiday shopping season, was the largest since July. Analysts had expected a 0.7% increase.
A 1.0% jump in sales aside from autos, considered a more reliable indicator of core household spending, was well ahead of the 0.5% gain analysts were expecting and it was the sharpest climb since January of last year.
November's sales data were revised down to a 0.6% gain overall from a previously reported 1.0% increase and to a 0.7 gain from an earlier reported 1.1% rise when autos were excluded.
Retail Sales Are 'Solid'
"I think they're very solid," said Bruce Kasman, U.S. Economist at JP Morgan, in an interview on CNBC's "Squawk Box." "The number in December was stronger than we expected, especially after you look at the number stripping out the volatility from autos and gasoline."
According to Kasman, the retail sales data supports his view that the economy will be averaging at about 3% growth in the first half of this year.
Also Friday, the National Retail Federation said that total holiday spending rose 4.4% from last year, below its initial forecast of 5% growth. Figures exclude automobile, gas station and restaurant sales.
"Unseasonably warmer weather and the slower housing market had a clear impact on consumer spending," NRF's chief economist, Rosalind Wells, said in a statement. "NRF expects these subdued gains to continue into the first half of 2007."
December retail sales rose 3.9% from last year and increased 0.4% from November, according to the NRF. November retail sales were revised lower to a 5.1% jump, from an initial report of 6.3%.
Sales Rose 6% Last Year
Retail sales for all of 2006 advanced by 6% from 2005, the smallest year-over-year gain since a 4.3% increase in 2003, the Commerce Department said.
Sales at auto and parts dealers were up 0.3% in December after a revised unchanged reading in November, which was originally reported as a 0.9% gain.
Sales at gasoline stations rose 3.8%, while sales at electronics and appliance stores, furniture and home furnishing stores also increased.
Meanwhile, sales at building material and garden supplies stores declined 1.1%, reflecting a slowing housing market.
Total business inventories at manufacturers, wholesalers and retailers rose in November to a seasonally adjusted $1.368 trillion, the Commerce Department said.
The rise in unsold stocks on hand was higher than the 0.3% increase expected from economists ahead of the survey.