Retail Sales Advance in November
By Dr. Peter Morici, Professor of International Business

Today, the Commerce Department reported retail sales increased 0.3 percent in November. Less automobiles and parts, retail sales fell 0.3 percent.

Overall, November retail sales were up, 6.3 percent over November 2004.

Retail sales, less automobiles and parts, were up 8.7 over November 2004. This is decent gain after adjusting for inflation greater than 4 percent.

The retail sector is enjoying a decent but unexceptional holiday shopping season. Things are going better than reports from retail chains indicate, and much better than retail sector economists predicted. The reason is clear: shoppers continue to move to the internet.

Nonstore retail sales, where internet sales are tallied, were up 10.3 percent in November over last year. This followed similar double digit gains in September and October.

Internet retailers enjoy a number of advantages. In addition to saving on gasoline and hassle, internet retailers offer greater variety and depth of inventory, the opportunity to clearly compare alternative products, and better price transparency. Brick and mortar retailers have yet to offer good, tangible responses to these challenges. Other than clothes, where sizing creates issues, these advantages in shopping convenience, information and pricing will loom ever larger as more and more internet savvy young people enjoy increased buying power.

The solid retail performance, coupled with recent good news that core inflation remains tame and energy prices have subsided, indicates the economy continues moderate growth. The red hot growth recorded in the third quarter will not continue. The economy can continue to expand at a 3.5 percent rate into 2006 if the Fed does not hit the breaks too hard.

Expect the Fed to increase interest rates to 4.5 percent but interest rate increases beyond 4.5 percent are far less certain. Interest rate increases beyond 4.5 percent would put the economic expansion at risk.