Retail Sales Are Up, But Is That the Full Story?: Here's What You Need to Know

The Commerce Department announced Tuesday that retail sales rose 0.5 percent in December from November, slightly better than November's 0.4 percent increase and the best showing since September.

But before you start doing your "the economy's back" dance, let's take a closer look at the report.

A 1.6 percent jump in sales of autos and auto parts led all categories. Car companies closed out their best sales year since 2007. Total retail spending was even stronger when factoring out a drop in gas prices. Excluding a 1.6 percent decline in gas station sales, retail spending increased 0.8 percent.

However, although a few industries saw notable upticks in sales, one sector got hit particularly hard: Electronics and appliance stores.

“[W]here the report was undisputedly weak, and where many were hoping for a boost but did not get it, was in the higher margin electronics and appliance stores,” Zero Hedge notes, “which dropped -0.6% in December, down big from the 2.3% increase in November, and further weakness for those hoping that December saw a surge in spending over gadgets."

"In other words, more bad news for the makers of iGizmos," the report adds.

Courtesy Zero Hedge

Indeed, considering that their stock has been on the decline for the past few months, this news doesn’t bode well for Apple.

And while we're on the topic of "declining," it should be pointed out that despite the December gains, 2012 was the worst year for retail sales growth since the Great Recession supposedly ended more than three years ago.

Retail sales rose just 5.2 percent last year. That's slower than the 7.9 percent growth in 2011 and 5.6 percent growth in 2010.

Retail sales are also likely to weaken in the first half of 2013 because lawmakers and President Barack Obama allowed a two-year reduction in Social Security payroll taxes to lapse. Most Americans will start seeing less money in their paychecks this month.

A person earning $50,000 a year will see take-home pay shrink by roughly $1,000 in 2013. That's likely to slow consumer spending and weigh on overall economic growth.

"With retail sales increasing 0.5 percent in December and the biggest drivers of such gain coming from auto parts, furniture, and health & personal care, it really means dealership and furniture stores end-of-year blockbuster sales pushed overall retail sales higher in December," said Xavier Epps, financial adviser and owner of XNE Financial Advising, LLC.

"The downside is that retailers aren’t going to provide similar sales of this magnitude throughout the months of the 2013 and slower spending should be expected in the months to come due to implementation of higher taxes and the expiration of the payroll tax cut for all U.S. workers.

"In order to have month-over-month positive growth in sales for 2013, retailers are going to have to offer deeper discounts compared to the same period in 2012 that will encourage the consumer to spend. I honestly believe we can expect less and not more retail sale growth in 2013," he adds.

The retail sales report is the government's first look at consumer spending, which drives roughly 70 percent of economic activity.

Final Thought: Remember when we talked in September about the importance of core capex [capital expenditures] orders? Yeah, well, that index fell to 4.3 in December, its lowest point since 2009.

So there’s that.

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The AP contributed to this report. Featured images courtesy Getty Images