The Case for a Blowout Holiday

Holiday sales have been viewed as a disappointment so far, but some optimists think the reality is quite a bit different.

The argument is by now familiar. Growth in online sales and a rise in gift certificate-giving have rendered traditional measures of consumer spending incomplete. Bulls say the government's own retail sales numbers, which try to include online commerce, are showing their best growth rate in more than a decade.

On a year-over-year basis, and excluding volatile auto sales, retail sales grew 8.6% in November, according to the Census Bureau. That represents the strongest year-over-year growth in November by that measure recorded by the government since it started using its current statistical method in 1992.

"Conventional chain-store sales estimates fail to account for the billions of dollars spent in direct-to-consumer channels, like Dell.com (DELL Quote), Yahoo! Shopping (YHOO Quote), eBay (EBAY Quote) and other non-store channels," said Richard Hastings, chief retail analyst with Bernard Sands LLC.

When the government released its retail sales number for November earlier this month, the financial press focused on the tepid but expected 0.1% increase for the month, compared to October. Excluding autos, sales were up 0.5% from the month before, beating Wall Street's estimate calling for a 0.3% jump.

Both month-to-month readings were viewed as healthy but not showing a strong enough pickup going into the holiday season, especially in the wake of widespread sales disappointments reported by individual retailers the week before.

Based on sales target misses in November from a variety of retailers, including Wal-Mart (WMT Quote), the International Council of Shopping Centers, or ICSC, lowered its estimates for the holiday season results to 2.5% to 3% from the previous 3% to 4% range. Analysts viewed the post-Thanksgiving shopping rush as weak, and companies ratcheted up promotional discounts for the month of December, hoping to close the gap.