US retail sales growth slows as higher taxes kick in

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.

The retail sales report, however, 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

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