US retail sales rise slightly in January after tax increase

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A woman shops at a store in a mall in Arlington, Virginia. The Commerce Department says retail sales ticked up 0.1 percent last month after a 0.5 percent rise in December. January's increase was the smallest in three months.Retail sales grew in December, but less than expected.

Americans barely spent more last month at retail businesses and restaurants after higher taxes cut their paychecks. The small increase suggests consumer spending may be weak in the January-March quarter.

The Commerce Department says retail sales ticked up 0.1 percent last month after a 0.5 percent rise in December. January's increase was the smallest in three months.

Sales fell at auto dealerships, clothing stores and furniture stores. They rose at home-improvement stores, gas stations and online retailers.

So-called core retail sales, which exclude autos, building materials, and gas stations, ticked up 0.2 percent. Economists pay close attention to core sales because they strip out the most volatile categories.

Nearly all working Americans are taking home less pay because of a temporary cut in Social Security taxes that expired last month.

The retail sales report is the government's first look at consumer spending, which drives 70 percent of economic activity.

Growth is likely to stay weak in part because nearly all working Americans are taking home less pay this year. Congress and the White House allowed a temporary 2 percentage point cut in Social Security taxes to expire last month. That means a person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

Top-earning households are also paying higher income taxes this year. While the Obama administration and Congress agreed to prevent income taxes from rising on most Americans, their deal allowed income taxes to rise on individuals earning $400,000 a year and couples earning $450,000 a year.

The Social Security tax increase was a key reason the Conference Board's index of consumer confidence plummeted last month to its lowest level in 14 months. That survey was taken early in the month, when most Americans were discovering their smaller paychecks.

But a separate survey taken later in the month by the University of Michigan suggested consumers weren't quite as dismayed, possibly after absorbing the impact of the tax increase.

Americans may be feeling better about the economy because of improvement in the job market. Employers added an average of 200,000 jobs a month in the final three months of last year, the Labor Department said earlier this month. That was up from just 150,000 in the preceding three months.

And some retail store chains reported healthy sales gains last month, suggesting that at least some consumers kept shopping even after the tax cut kicked in. Some of the gains likely reflected healthy holiday discounts.

Overall, consumer spending grew at a faster pace in the final three months of last year than in the preceding quarter. Still, steep cuts in defense spending and slower company restocking weakened the economy in the fourth quarter.

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