The retail industry got an early Christmas present: better-than-expected November sales. The Commerce Department's monthly retail sales tally showed unexpected pockets of strength in retail, including car dealers and online sales. Store and restaurant sales were $352.1 billion, up 1.3% from October and 1.9% from November 2008. Retailers alone sold $314.1 billion of goods, 1.4% more than in October and 2.2% more than a year earlier.
Most retail categories posted higher sales in November than October, except clothing and housewares, both down 0.7%.

Earlier reports had been slightly disappointing, given the lukewarm start to the holiday season on Black Friday. Retailers blamed slow November sales on warm weather and shoppers' holding out for last-minute markdowns.

Exceeding Low Predictions

The U.S.'s numbers include several entries that weren't seen in previous reports, such as Wal-Mart Stores (WMT), auto dealers, and "non-store retailers" -- online stores and catalogs -- says John Canalli, economist at LPL Financial in Boston. Wal-Mart, the world's largest retailer, does not release numbers monthly, but its figures are in the government's report, he notes.

The more complete picture is encouraging, especially for this holiday shopping season, Canalli says: "Unless something terrible happens in the next two weeks, you're going to exceed very low sales expectations."

But November's growth is based on a comparison to last year's poor sales. Overall, year-to-date sales are down 2.1% from 2008. Only two retailer categories were running ahead of last year by the end of November: health and beauty, up 3.2%, and bars and restaurants, up 0.6%. Groceries and liquor stores are flat for the year.

Gas, Car Sales Up

On a year-over-year basis, November's biggest gainers were gas stations, up 8.9% over the same time last year, and non-store retailers, up 8.1%. Gas sales are reverting to more normal rates, after passing the anniversary of summer 2008's peak prices, which had skewed sales comparisons until September and October this year. Warehouse clubs Costco Wholesale Corp. (COST) and B.J.'s Wholesale Club (BJ) in particular had complained that the comparison had cost them several percentage points in comparable-store sales growth this year.

Stable gas prices, even if slightly higher, are good for consumers, who can then budget their spending better than when prices spike and drop constantly, as they did a year ago, Canalli says. This time last year, energy costs were taking up 6.5% of households' spending, he says, and that's now down to 5%.

Auto sales were up 6.7% over November 2008, continuing to benefit from automakers' incentives, even after the end of the government's "cash for clunkers" trade-in rebate program. The numbers reflect pent-up demand from consumers, who are shopping for items beyond necessities, Canalli says. "It's a clean number, too. There's no cash-for-clunkers there," he says. "I think that's a good sign for the consumer."

Unemployment's Effect

Most leading economic indicators are lining up for a consumer recovery, but Canalli says unemployment is a wildcard. "Sure, the data says we're out of the recession," he says, "but it doesn't feel like we're out of a recession."

That reflected on November's biggest losers, hardware stores (down 9.3% from November 2008) and home-furnishing stores (down 7.9%). Home Depot (HD) and Lowe's Cos. (LOW) have repeatedly complained this year that homeowners are postponing home-improvement projects and tinkering with small repairs and paint while waiting for the housing market to improve. Still, some retailers, such as Kohl's Corp. (KSS) and JCPenney (JCP), are betting that consumers will start spending on home products next year, now that foreclosure activity and home prices appear to be stabilizing.

A Modest Rise in 2010?

Canalli concurred with forecasts that the economy will start creating jobs modestly in early 2010 and that employment will pick up as the year goes on. "Then, consumers will spend a little more, and people will believe it's a recovery," he says.

Until then, holiday forecasts remain cautiously optimistic. The National Retail Federation hailed the sales numbers as good news, but held onto its projection that holiday sales will be down 1% from last year's. "Retailers are encouraged to see momentum building in sales as they prepare for the final ten days before Christmas," NRF chief economist Rosalind Wells said in a statement. "Although November sales were encouraging, companies know that the holiday season is far from over and expect this year to come down to its usual photo finish."

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