Retail Sales

The sales outperformed the federation's forecast of a 3.3% increase, and was the largest percentage increase since 2004, when holiday sales jumped 5.9%.

"Retailers did a tremendous job planning for the season by managing inventory and hitting the right price points that helped them tap into pent-up demand," said Matthew Shay, president of the National Retail Federation.

Strong sales in December of clothing, sporting goods, books and music helped lift retailers in the holiday season, according to the federation.

The National Retail Federation reported an increase of 8.4% in December sales at clothing and clothing accessory stores, and an increase of 8.2% at sporting goods, hobby, book and music stores, compared to the same month in 2009.

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Also, the federation said that stores selling building material and garden equipment reported a 12% increase in December sales, compared to 2009.

This is a big deal for both retailers and the economy. For retailers, year-end holiday sales can account for as much as 50% of their sales and profits for the full year.

Since consumer spending also fuels more than two-thirds of the economy, the hope is that a pick-up in spending means that Americans are feeling more secure about their jobs and spending ability.

Earlier Friday, government statistics showed that sales increased in December, although they fell just shy of economists' expectations.

Overall sales rose 0.6% last month to $380.9 billion, the Commerce Department said. Sales were expected to have gained 0.7%, after rising 0.8% in November, according to a consensus of economists surveyed by Briefing.com.

Month-to-month sales, excluding autos, rose 0.5% in December, falling short of the forecast for an increase of 0.6%.

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Retail sales rose 7.9% in December, compared to the year-ago month, according to the government. Retail sales rose 6.6% for all of 2010 compared with the prior year.

Non-store sales, which are primarily online sales, rose 2.6% month over month in December, the biggest percentage gain for any sector in the report. Other strength was reported among building supply merchants, health care retailers and gasoline stations.

Dragging on the report were sales at miscellaneous merchants such as florists and gift stores, down 1.3%. Also lower were sales at general merchandise stores, as well as electronics stores and food stores.

-- CNNMoney senior writer Parija Kavilanz contributed to this story  

Retail SalesMeager increase forecast for holiday retail sales