WASHINGTON (AP) — 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, which could hold back economic growth.
Retail sales ticked up 0.1 percent in January from December, the Commerce Department said Wednesday. That follows a 0.5 percent increase in December and is the smallest in three months.
Sales fell at auto dealerships, clothing stores and furniture stores. The declines came after big gains in each of those categories in December. Sales rose last month 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. That's down from 0.6 percent in December. Economists pay close attention to core sales because they strip out the most volatile categories.
The retail sales report is the government's first look at consumer spending, which drives 70 percent of economic activity.
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.
Economists were mildly encouraged that spending rose at all after the tax increases took effect. Many expect that spending may pick up later this year as hiring improves.
"No surprise that consumer spending eased a bit in the New Year," Jennifer Lee, an economist at BMO Capital Markets, said in a note to clients. "Look for spending to pick up as the year progresses, supported by stronger job growth."
Top-earning households are also paying higher income taxes this year. President Barack Obama and lawmakers agreed to prevent income taxes from rising on most Americans. But their deal to avoid the fiscal cliff allowed income taxes to rise on individuals earning $400,000 a year and couples earning $450,000 a year.
Michael Feroli, an economist at JPMorgan Chase, said the higher taxes could weigh on spending for up to six months.