Sluggish Retail Sales Show Strains on Spending
Life + Money

Sluggish Retail Sales Show Strains on Spending


Retail sales barely rose in January as tax increases and higher gasoline prices restrained spending, suggesting the economy got little help from the consumer at the start of the year.

The Commerce Department said on Wednesday retail sales edged up 0.1 percent after an unrevised 0.5 percent rise in December.

The modest gain, which was in line with economist's expectations, suggested that households were responding to the expiration of a two percent payroll tax cut on January 1. Taxes also went up for wealthy Americans.

So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, ticked up 0.1 percent after gaining 0.7 percent in December.

"It adds to expectations that growth is likely to be lackluster in the opening quarter of the year, due mainly to the expiration of that payroll tax cut," said Joe Manimbo, a senior market analyst at Western Union Business Solutions.

Consumer spending accounts for about 70 percent of the U.S. economy and grew at a 2.2 percent annual rate in the fourth quarter. With households facing smaller paychecks and gasoline prices marching higher, the pace of growth in spending is expected to slow this quarter.

U.S. financial markets were little moved by the data. Stock futures pointed to modest gains at the open, while Treasury debt prices were slightly lower.

Gasoline prices have increased 30 cents so far this year. A separate report from the Labor Department showed higher oil prices pushed up the cost of imported goods last month. Import prices rose 0.6 percent in January after falling 0.5 percent the prior month.

Still, the increase is insufficient to ignite inflation pressures and the Federal Reserve is expected to remain on its ultra easy monetary policy as it continues to nurse the economy back to health.

Retail sales were mixed last month, with receipts at auto dealers slipping 0.1 percent after rising 1.2 percent in December. Excluding autos, retail sales increased 0.2 percent last month after advancing 0.3 percent in December.

Sales at building materials and garden equipment suppliers rose 0.3 percent, reflecting gains in homebuilding as the housing market recovery shifts into higher gear. Receipts at clothing stores fell 0.3 percent.

Sales at restaurants and bars were flat, while receipts at sporting goods, hobby, book and music stores rose 0.6 percent. Sales of electronics and appliances gained 0.2 percent, while receipts at furniture stores fell 0.2 percent.

(Additional reporting by Jason Lange of Reuters)