Consumer purchases in January edge up 0.1%
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — U.S. consumers increased their purchases of retail goods in January at a slower pace, suggesting that a beginning-of-the-year tax hike constrained spending.
Taxes on working Americans went up 2% last month after the end of a tax break put in place two years ago to spur the economy. The nation’s richest citizens were also required to pay higher tax rates.
The increase in taxes appeared to have a dampening effect. Retail spending rose a scant 0.1% last month following a 0.5% gain in December, the Commerce Department said Wednesday. Sales rose a somewhat faster 0.2% excluding the large auto sector.
Economists surveyed by MarketWatch expected retail sales to be unchanged overall and up 0.1% minus autos. The auto sector, which generates about one-fifth of total sales, is prone to large monthly swings that can distort broader retail trends.
For all of 2012, retail sales rose an unadjusted 4.4%, more than twice the rate of consumer inflation.
The retail report had little impact on U.S. markets. In premarket trade Wednesday, stock futures held onto small gains.
Consumer spending accounts for as much as 70% of the U.S. economy and sales at retailers represent about one-third of that consumption. So retail sales are a good proxy for how fast the economy is growing, though economists look at longer-term trends because the monthly data is volatile and subject to sharp revisions.
Still, softer retail sales renew questions about whether the government’s actions are weighing on the economy. The higher taxes imposed in January could be followed in March by an $85 billion reduction in federal spending via a process known in Washington as the “sequester.” The cuts could hit defense companies particularly hard.
Yet the U.S. is still expected to remain on a modest growth path despite the headwinds in Washington. A steady pace of hiring, more business investment and improved exports should underpin growth, economists say, with stronger gains coming later in the year.
Inside the report
Sales in January rose the fastest for general-merchandise retailers, department stores and Internet and mail-order firms. Spending rose about 1% in each category. Sales also rose slightly at gas stations, suppliers of building materials and stores that sell appliances and electronics.
The cash registers rang less at auto dealerships and stores that market home furnishings, clothing and personal-care items.
Auto sales dropped 0.1%.
A category closely followed by economists, which excludes autos, gasoline and building materials rose a solid 0.5%. The increase suggests the retail sector held up fairly well despite the increase in taxes, though economists say it sometimes takes time for consumers to alter their spending habits in response to changes in rates.
In December, the rise in retail sales was unrevised. November’s increase was moved up a notch to 0.5%.
Jeffry Bartash is a reporter for MarketWatch in Washington.
