WASHINGTON -- Consumers, defying predictions they would turn into Scrooges, spent on clothes, electronics and home furnishings in December and prevented the sharp drop in retail sales that analysts were forecasting.
The Commerce Department reported Tuesday that sales at retailers dipped by 0.1 percent in December from the previous month, a much better showing than the 1.4 percent decline many economists were predicting. In November, sales fell by a steep 3 percent.
"We went into the holiday season thinking sales could be disastrous. In fact, consumers held up fairly well," said Carl Tannenbaum, chief economist with LaSalle Bank/ABN AMRO. "People are feeling more confident in the economy and they are expressing that with their dollars."
Consumer confidence, as measured by the Conference Board, rebounded strongly in December after three months of steep declines.
On Wall Street, stocks moved higher. The Dow Jones industrial average closed up 32.73 points at 9,924.15.
Retail sales last month were pulled down by a 4.2 percent drop in sales at gasoline stations, reflecting lower prices at the pump. Sales at sporting goods and building-supply stores also declined.
But sales for many other items -- including clothing, home furnishings, electronics and appliances, and health and beauty products -- posted solid gains in December. So did sales at bars and restaurants.
Sales of cars edged down by 0.1 percent last month as free-financing deals and other incentives waned. But the decline was smaller than many analysts expected and marked an improvement over the 10.3 percent plunge seen in November.
Excluding automobile and gasoline sales, overall retail sales rose a respectable 0.3 percent in December, economists said.
"Consumers aren't buckling," said economist Clifford Waldman of Waldman Associates. "They are spending selectively."
Economists said consumers have shown resilience amid economic gloom and rising unemployment. The country tipped into recession in March and was dealt another blow by the Sept. 11 terror attacks. The nation's unemployment rate hit a six-year high of 5.8 percent in December.
For all of 2001, retail sales rose by 3.4 percent. While that was a big moderation from the 7.6 percent increase in 2000, it showed that consumer spending didn't collapse. Still, the 3.4 percent increase was the weakest showing since the government began tracking retail sales using the current classification system in 1993.
Economists said lower energy prices, heavy discounting by merchants, low interest rates and a refinancing boom -- which has left people with extra cash in their pockets -- are helping support consumer spending.
To revive the ailing economy, the Federal Reserve cut interest rates 11 times last year. That pushed the prime rate, a benchmark for many consumer and business loans, to the lowest level since November 1965.
Some analysts are predicting the Fed's action will set the stage for a recovery in the first half of this year.
But whether that timetable is accurate depends in part on whether consumers -- whose spending accounts for two-thirds of all economic activity -- reduce spending in the coming months.
Some economists are concerned that a worsening employment picture could jolt Americans' confidence, causing consumers to sharply pull back spending, which could delay a rebound or make for a weak recovery. But other economists believe consumers will hang tough.
"My view is that the economy is in the process of bottoming out and that consumers will be able to hold their own and help this economy rebound in the first half of the year," said Lynn Reaser, chief economist with Banc of America Capital Management.
Treasury Secretary Paul O'Neill offered a fairly upbeat assessment Tuesday of where he believes the economy is heading.
"I think the balance is now decidedly on the positive side," O'Neill said on CNBC. "I think it foretells movement back into significant positive growth territory as we go through the year."
In December, sales at clothing stores rose by 2.6 percent, following a 1.2 percent decline.
Sales of electronics and appliances rose by 2 percent, following a 4.1 percent increase. Sales at bars and restaurants increased by 1.8 percent, up from a 1 percent rise in November.
At general merchandise stores, including department stores, sales grew by 0.5 percent, after a slim 0.1 percent rise. Sales at health and beauty stores rose by 0.4 percent, following a 0.5 percent decline.
Sales at sporting goods, hobby and music stores declined by 3.3 percent in December, after a 3.7 percent advance. Sales of building and garden supplies fell by 1.9 percent, after a 0.4 percent decrease.