WRAPUP 4-U.S. retail sales growth slows as higher taxes kick in

Wed Feb 13, 2013 4:25pm EST

* Retail sales edge up 0.1 percent in January
    * Core retail sales also gain 0.1 percent
    * Report suggests slowdown in pace of consumer spending

    By Lucia Mutikani
    WASHINGTON, Feb 13 (Reuters) - U.S. retail sales barely rose
in January as tax increases and higher gasoline prices
restrained spending, setting up the economy for only modest
growth in the first quarter.
    The Commerce Department said on Wednesday retail sales edged
up 0.1 percent after a 0.5 percent rise in December.
    The small increase suggested the expiration of a 2 percent
payroll tax cut on Jan. 1 and higher tax rates for wealthier
Americans were hurting the economy. 
    Still, economists said consumer spending was unlikely to
buckle given rising home values, moderate job growth and
rallying stock market prices. Stocks have surged in recent
months partly on stronger than expected corporate earnings. 
    The Standard & Poor's 500 index has gained 6.4
percent so far this year. 
    "We are starting to see the impact of higher taxes, but we
have a positive wealth effect from increasing house prices and a
boost from equities," said Robert Dye, chief economist at
Comerica in Dallas. "My expectation is that consumers are able
to continue to increase spending but only moderately."
    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.
    The S&P 500 briefly touched a five-year high during
Wednesday's session before retreating to end little changed.
Prices for U.S. government debt fell, while the
dollar was flat against a basket of currencies.
    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. That helped soften the blow to the economy from
slower inventory accumulation and sharp cuts in defense
spending. 
    The government said last month that economic output 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 auto dealerships accumulated
slightly more inventories in December than earlier thought. 
    Taken together with a smaller trade deficit in December, the
data suggested the government will raise its estimate for
fourth-quarter gross domestic product growth when it publishes a
revision later this month. Even so, the economy likely grew at
under a 1 percent rate in the fourth quarter, economists said.
    
 
 
    
    SPENDING GROWTH MOMENTUM TO SLOW
    Consumer spending growth is expected to pull back from the
fourth-quarter's clip as households adjust to smaller paychecks
and gasoline prices march higher. Prices at the pump have
increased 30 cents a gallon so far this year.
    Estimates for consumer spending growth in the first quarter
currently range between 0.7 percent and 1.8 percent.
    While some economists were encouraged that consumers had
maintained purchases despite a reduction in their disposable
incomes, they cautioned sales could remain weak over the next
months. 
    "By no means are we completely out of the woods when it
comes to the impact of higher taxes," said Michael Feroli, an
economist at JPMorgan in New York. "Evidence from past episodes
suggests it could take up to two quarters for spending to fully
adjust to new tax realities."
    A softer pace of consumer spending is expected to limit GDP
growth to a 1.8 percent rate this quarter, according to a
Reuters poll of economists. For the year as a whole, economists
expect growth of just 2.3 percent. 
    A separate report from the Labor Department showed higher
oil prices helped push up the cost of imported goods by 0.6
percent last month. Import prices had fallen by 0.5 percent in
December.
    Still, non-petroleum import prices edged up just 0.1 percent
in January and have risen just 0.2 percent over the past year,
showing a lack of broad inflation pressure.
    The Federal Reserve is likely to take solace in the tame
non-petroleum import price reading and continue with its
bond-buying program for several more months. The Fed is buying
$85 billion in bonds per month and has said it will continue
with purchases until the labor market outlook improves
substantially.
    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.
    There was an increase in sales at building materials and
garden equipment suppliers, reflecting gains in homebuilding as
the housing market recovery shifts into higher gear. 
    The impact of the tax increases was most evident in
restaurants and bar sales, which were flat.
    "Dining out tends to be one of the first areas of spending
to get cut from household budgets when finances get squeezed,
said Ellen Zentner, a senior economist at Nomura Securities in
New York.
    There were declines in sales at clothing and furniture
stores. Sporting goods, hobby, book and music stores, as well as
electronics and appliances stores showed gains in sales.