Instant View: Retail sales growth pauses as higher taxes kick in

Retail sales barely rose in January as tax increases and higher gasoline prices restrained spending.

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

The modest gain, which was in line with economist's expectations, suggested that households were responding to the expiration of a two percent payroll tax cut on January 1. Taxes also went up for wealthy Americans.

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 after gaining 0.7 percent in December.

Consumer spending grew at a 2.2 percent annual rate in the fourth quarter.

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.

ANALYSTS COMMENTS:

MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES AMERICA, NEW YORK:

"It's a soft report, but that's largely as expected given the environment. We saw payroll taxes going up and that probably led to at least a pause in consumer spending in January. You can see it in clothing stores where sales lost some ground. Furniture stores didn't do well. Electronic stores saw only a small increase. On the positive side, general merchandise stores showed growth of 1.1 percent. The biggest reaction to the payroll tax would come in the first couple of months of the year so I don't think this signals what will happen for the rest of the year. I expect stronger retail sales, on average, for the year.

DAVE ROVELLI, MANAGING DIRECTOR, U.S. EQUITY TRADING, CANACCORD GENUITY, NEW YORK:

"Everyone's waiting for a sell-off in the market. There's so much money coming in from inflows into mutual flows. Every time the market backs off just a little, the new money steps in.

"So unless you get really bad economic news or really good economic news it's really not going to move the market too much, especially to the downside.

"When news like this hits the tape and its basically inline, it's like a non-event because there's so much money on the sidelines being put to work."

PETER CARDILLO, CHIEF MARKET ECONOMIST, ROCKWELL GLOBAL CAPITAL, NEW YORK:

"The retail numbers came in a bit lighter-than-expected and show the consumers continued to be guarded. Import prices came in a bit higher than expected but the number suggest that modest growth is still ahead so I don't think this will have a negative impact on the market today."

JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON:

"The number itself was in line with expectations. It adds to expectations that growth is likely to be lackluster in the opening quarter of the year, due mainly to the expiration of that payroll tax cut.

"In terms of the dollar, I don't think it's likely to gain much meaningful traction from this because it does little to suggest the Fed will ease off monetary easing anytime soon."

(Americas Economics and Markets Desk)