Retail Sales Get Auto Boost; Inflation Remains Tame

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Retail sales rose more than expected in December as Americans shrugged off the threat of higher taxes and bought automobiles and a range of other goods, suggesting momentum in consumer spending as the year ended.

Elsewhere, wholesale prices remained tame, while a gauge of manufacturing in New York again showed weakness.

The Commerce Department said on Tuesday retail sales increased 0.5 percent after an upwardly revised 0.4 percent rise in November. Sales in November were previously reported to have gained 0.3 percent.

Economists polled by Reuters had expected sales to rise only 0.2 percent. Sales were up 4.7 percent from December 2011 and rose 5.2 percent for the whole of 2012.

So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, increased 0.6 percent after advancing 0.5 percent in November.

The second straight month of gains in core sales suggested consumer spending picked up in the fourth quarter after rising at a annual pace of 1.6 percent in the July through September period.

PPI Falls Again

U.S. producer prices fell in December for the third straight month as food prices declined by the most in over 1 1/2 years, while a measure of underlying prices pointed to minimal inflation pressures in the economy.

The Labor Department said its seasonally adjusted producer price index slipped 0.2 percent last month.

Economists polled by Reuters had expected prices at farms, factories and refineries to drop 0.1 percent last month.

Wholesale prices, excluding volatile food and energy costs, rose a modest 0.1 percent, in line with analysts' forecasts.

The modest core reading suggests businesses are seeing little growth in price pressures, and reinforces the outlook that modest inflation will give the U.S. Federal Reserve space to continue with easy money policies aimed at propping up the economy.

The decline in overall prices brought 12-month inflation to 1.3 percent, the lowest level since July.

A drop in food costs drove most of the overall decline in December prices. Wholesale food prices fell 0.9 percent from November, the sharpest drop since May 2011.

NY Manufacturing Slides

Manufacturing in New York state contracted for a sixth straight month in January, pressured by a fall in new orders and shipments, the New York Federal Reserve said in a report.

The New York Fed's "Empire State" general business conditions index fell to -7.8 from a revised -7.3 the month before. Economists polled by Reuters had expected a flat reading.

The new orders index fell to -7.2 from -3.4, while shipments fell sharply to -3.1 from 11.9.

Employment gauges remained contractionary, but were better than the month before. The index for the number of employees was at -4.3 compared to -9.7 and the average employee workweek index was at -5.4 compared to -10.8.

The index of business conditions six months ahead rose to 22.4 in January from 17.95 in December.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.