Retail sales barely rose in January as tax increases and higher gasoline prices restrained spending, setting up the economy for only modest growth in the first quarter.

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

The small increase suggests that the expiration of a 2 percent payroll tax cut on January 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 corporateĀ earnings.

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.

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.

However, the retail sales report 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.


Consumer spending growth is expected to pull back from the fourth-quarter’s clip as households adjust to smaller paychecks and gasoline prices march higher. Prices at the pump have increased 30 cents a gallon so far this year.

Estimates for consumer spending growth in the first quarter currently range between 0.7 percent and 1.8 percent.

While some economists were encouraged that consumers had maintained purchases despite a reduction in their disposable incomes, they cautioned sales could remain weak over the upcoming months.

A softer pace of consumer spending is expected to limit GDP 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.

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.

There was an increase in sales at building materials and garden equipment suppliers, reflecting gains in homebuilding as the housing market recovery shifts into higher gear.

The impact of the tax increases was most evident in restaurants and bar sales, which were flat.

There were declines in sales at clothing and furniture stores. Sporting goods, hobby, book and music stores, as well as electronics and appliances stores showed gains in sales.