Preliminary reports of consumer activity in the weeks leading upto the Christmas long weekend suggest a marked improvement inretail sales as compared to last year's relatively lacklustergains. According to the latest report from MasterCard SpendingPulse, November and December retail salesthrough December 24 were 5.5% higher than a year earlier. Retailsales were up 4.1% last year, but that result followedbelt-tightening and a drop in activity in 2008. As part of along-term structural shift, online retailers registered the largestgains this year; but bricks and mortar retailers measuredsignificant gains, as well.

The final retail tally for December will be tempered by theblizzard that has swept through the Northeast, keeping shoppers athome during the important sales period immediately followingChristmas Day. Controlling for the negative impact of the inclementweather, however, retailers can cheer that results were on theupside of expectations. Looking forward, it is unclear if thesegains will be sustained or if Americans will return to their morerecent modus of frugality. On one hand, the extension of theBush-era tax cuts and the payroll tax holiday will collectivelyallow for greater potential discretionary spending in the New Year.At the same time, consumer sentiment remains well below the levelsneeded to translate a large share of after-tax income gains intoactual spending.

Are the Gains Sustainable?