Retail sales growth slows as higher taxes kick in

Wed Feb 13, 2013 10:43am EST
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By Lucia Mutikani

WASHINGTON (Reuters) - Retail sales barely rose in January as tax increases and higher gasoline prices restrained spending, suggesting the economy got little help from consumers 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 economists' expectations, suggested the expiration of a 2 percent payroll tax cut on January 1 and higher tax rates for wealthier Americans were weighing on the economy.

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, which accounts for about 70 percent of the U.S. economy, grew at a 2.2 percent annual rate in the fourth quarter. Economic activity slipped at a 0.1 percent rate in the final three months of 2012.

However, the retail sales report showed core sales were a bit stronger in November and December than previously reported. In addition, businesses outside autos accumulated slightly more inventories than earlier thought.

Taken together with a smaller trade deficit in December, this suggests the government will raise its estimate for fourth-quarter gross domestic product when it publishes its first revision to the data later this month.   Continued...

A man walks past a shop while carrying a shopping bag in New York, December 26, 2012. REUTERS/Eduardo Munoz