U.S. retail sales for December delivered a decent headline, but weak details spooked traders. Overall, sales were up 1.2% in December, but the growth was entirely driven by auto sales.

Sales outside of the auto sector were flat in December following a downwardly revised gain of 0.3% in November. “While the December increase in overall sales was largely as expected, the ex-auto component was disappointing and suggests sluggish sales activity through the Christmas period,” says Bank of Montreal. “Nevertheless, the softness in December was limited to a few sectors, such as building and gardening equipment, food, and sporting goods, which all recorded declines.”

BMO Nesbitt Burns says that the flat result for ex-auto retail sales was disappointing because expectations were for a small rise near 0.3%. “The details are not as soft as the overall ex. autos result. So, the figures do not really provide a smoking gun for the weak-economy crowd,” Nesbitt says. “General merchandise retailers, who were the source of most of the scary stories about weak holiday shopping, did manage modest gains according to the official numbers. It is also vital to note that the large drop in hardware/lumber will be ignored by most analysts. Net of that mysterious drop, the figures were close to expectations. There is no question that this segment, which supports building contractors, is doing well.”

RBC Financial Group economists says it doesn’t expect the auto sales to hold up for long. “Almost certainly, the strong sales of recent year could very well rob potential sales in 2003. Moreover, the U.S. consumer is battling a host of factors, including a weak labour market, geopolitical uncertainty and high debt burdens which could quell their desire to spend over 2003. Still, consumers are hanging-on, and recent momentum suggests that consumers might have a stronger contribution to overall growth during the first quarter of this year.”

In other U.S. releases this morning, import prices were up in line with expectations at 0.7% in December. A substantial 7.4% jump in the petroleum import price index contributed to the bulk of the increase. Excluding petroleum, however, import prices posted only a marginal gain (+0.1%), although the decrease in export prices during the month still contributed to a decrease in the U.S. terms of trade.

“The Bush Administration will likely use these results as further reason for additional fiscal pump-priming,” concludes Nesbitt.