Retail Sales Barely Rise, Hinting at Slow Growth

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

The small increase suggested that the expiration of a two-percentage-point payroll tax cut on Jan. 1 and higher tax rates for wealthier Americans were weighing on the economy.

Still, economists said consumer spending was unlikely to buckle given rising home values, moderate job growth and rallying stock market prices.

“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 Bank. “My expectation is that consumers are able to continue to increase spending, but only moderately.”

Core sales, which exclude automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, ticked up 0.1 percent.

Consumer spending, which accounts for about 70 percent of the American economy, grew at a 2.2 percent annual rate in the fourth quarter. That helped to soften the blow to the economy from slower inventory accumulation and sharp cuts in military 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, excluding auto dealerships, accumulated slightly more inventory in December than earlier thought.

Taken together with a smaller trade deficit in December, the data suggested the government would raise its estimate for fourth-quarter gross domestic product when it publishes a revision later this month. Even so, the economy most likely grew at a rate under 1 percent in the fourth quarter, economists said.

Growth in consumer spending is expected to retreat from the pace of the fourth quarter as households adjust to smaller paychecks and higher gasoline prices. Prices at the pump have increased 30 cents so far this year.

Estimates of consumer spending growth in the first quarter currently range from 0.7 percent to 1.8 percent.

Some economists were encouraged that consumers had maintained purchases, though at a slow pace, despite a reduction in their disposable incomes.

“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 Chase. “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 G.D.P. 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 that 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, nonpetroleum import prices edged up just 0.1 percent in January and have risen just 0.2 percent over the last year, showing a lack of broad inflation pressure.

Article source: http://www.nytimes.com/2013/02/14/business/economy/us-retail-sales-show-slight-rise-in-january.html?partner=rss&emc=rss