The holiday shopping season was the best since 2006, as a strong November more than offset spending that tapered off in December.
The strength of holiday sales suggests a recovery in consumer spending. For investors, whose expectations were riding high after a stronger-than-expected November, the December figures were disappointing. That hurt retail stocks Thursday.
Early holiday discounts, which started in late October, drove big sales early in the season but also had shoppers finishing more gift-buying before December. A lull early in December and a blizzard Dec. 26 in the Northeast also took bites out of sales.
From Oct. 31 to Jan. 1, revenue at stores open at least a year rose by 3.8 percent over last year, according to an index compiled by the International Council of Shopping Centers. That's the biggest increase since 2006, when the measurement rose by 4.4 percent.
The index tailed off to a 3.1 percent increase in December after a 5.4 percent rise in November.
"The overall season was good, but the strength came from the beginning of the season," said Michael P. Niemira, chief economist at International Council of Shopping Centers.
December's gains came on top of a solid 3.6 percent gain in December 2009; November's figures compare with a 0.2 percent decline a year ago.
Thursday's figures are based on revenue at stores open for at least a year. That has long been considered a key indicator of a retailer's health, because it excludes revenue at stores that open or close during the year.
However, changes in shopping habits and other factors have led the figure to lose some of its value as a yardstick. Some stores exclude online revenue, which soared by 12 percent overall and accounts for 8 to 10 percent of total holiday spending. Online spending spiked by 17 percent in the week after Christmas, boosted by the blizzard, according to comScore.
In addition, many retailers have stopped reporting monthly figures, including some of the biggest chains: Walmart, Best Buy and Sears. Only about 30 merchants report now, down from about 60 at the end of 2005.
Nevertheless, the figures offer what analysts believe was a fair picture of the holiday season, according to Ken Perkins, president of RetailMetrics LLC.
Analysts say that the holiday 2010 season also marked the time that spending in many categories returned to pre-recession levels. Online spending, as well as spending on groceries, auto parts and clothing, are now above the pre-recession peak, according to MasterCard Advisors' SpendingPulse, which tracks all transactions, including cash.
Jewelry, home furnishings and luxury goods are still below peaks, according to the data service.
Niemira says he's confident that growth in spending should continue in 2011.
"What really has to kick in is the employment story, to keep the momentum going," Niemira said. A government jobs report due today is expected to show that the unemployment rate dipped to 9.7 percent in December, from 9.8 percent in November.
For Jerrie McKennon, a retiree in Burleson, Texas, 2010 was a good year. "I loosened up in 2010. The money we lost came back," said McKennon, who was at Manhattan Mall on Thursday.
Nearly all of McKennon's investments regained their pre-recession value last year, with the exception of her home. After watching her spending carefully for two years, she said, she allowed herself some splurges in 2010, including two elaborate vacations and a new Lexus.
For December, many retailers, including Target, Costco and Macy's, reported gains below Wall Street expectations. Clothing chain Gap suffered a surprise 3 percent drop in December. Analysts had expected a 2.6 percent increase.
Their shares took a beating. Target's stock fell by almost 7 percent, while Macy's fell by 3 percent. Gap's stock fell by more than 7 percent.
More expensive retailers saw sales do better than expected. Abercrombie & Fitch Co., which saw robust gains that beat Wall Street estimates, though that it had to discount to lure shoppers in.
Luxury stores, including Saks and Nordstrom, also showed big increases as the rallying stock market kept affluent customers spending.
Overall, department stores fared better than mall clothing chains. Discounters such as Target, which were among the top performers in November and drew in the big crowds for the early morning specials on the day after Thanksgiving, saw their sales slow in December.
December's smaller increases underscore the challenges that retailers face in getting shoppers back in the malls in the coming months when there are no holidays giving them reasons to spend.
One worry is that stores are pushing prices higher starting this spring as they offset higher costs in commodities, particularly cotton. For example, clothier Brooks Brothers is raising prices on all cotton items by an average of 10 percent.
BMO Capital Markets analyst John Morris said, "This is going to be a real test of wills between the consumer and the retailer."