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Higher Taxes Put the Brakes on Retail Spending

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Retail sales barely rose in January as tax increases and higher gasoline prices restrained spending, suggesting a slowdown in the pace of consumer spending early in the first quarter.

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

In a separate government report, import prices rose 0.6 percent, while export prices increased 0.3 percent. Economists in a Reuters survey forecast a 0.7 percent rise in import prices in January, and a 0.3 percent increase in exports. In December, both import and export prices fell 0.1 percent.

The modest gain in retail sales, which was in line with economist's expectations, suggested that households were responding to the expiration of a two percent payroll tax cut on Jan. 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, came in a little bit light, up just 0.1 percent after gaining 0.7 percent in December.

Consumer spending accounts for about 70 percent of the U.S. economy and grew at a 2.2 percent annual rate in the fourth quarter. The pace is expected to slow this quarter as households adjust to smaller paychecks and higher gasoline prices. The question is did the adjustment happen in January, or will it take more time to adjust, playing out over several months.

(Read More: 'Nemo' Will Take a Bite Out of February 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.

Sales at building materials and garden equipment suppliers rose 0.3 percent, reflecting gains in home building as the housing market recovery shifts into higher gear. Receipts at clothing stores fell 0.3 percent.

Sales at restaurants and bars were flat, while receipts at sporting goods, hobby, book and music stores rose 0.6 percent. Sales of electronics and appliances gained 0.2 percent, while receipts at furniture stores fell 0.2 percent.

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