Retail sales inch up despite tax bite

Tiny January gain more than expected

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By Patrice Hill

The Washington Times

Wednesday, February 13, 2013

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Department stores saw a gain of 1.0 percent on sales in January, ... more >

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U.S. retailers eked out a 0.1 percent gain in sales last month despite a big increase in payroll taxes that hit more than 100 million middle-class consumers during the month, the Census Bureau reported Wednesday.

Though anemic, the gain in sales was better than feared, as many economists and investors worried that the tax increase might entirely zap consumer spending power and lead to a fall in sales. Taxes rose with the end of the 2 percentage point holiday in payroll taxes enacted two years ago to try to stimulate the economy.

"Everyone is likely breathing a sigh of relief as the report didn't come in much worse than expected," said Sam Ro, an analyst at Business Insider. The sales gain was down from December's healthy 0.5 percent increase and brought the yearly gain in sales to 4.4 percent.

January's retail performance was dragged lower by a 0.1 percent decline in auto sales. Excluding autos, sales were up 0.2 percent. Consumers were also hit by a sudden 25-cent increase in the average price of gasoline in the middle of the month.

Department stores recorded the most robust gain of 1.0 percent, likely benefiting as consumers redeemed gift cards they received at Christmastime.

People didn't go out to eat at restaurants, however, with sales there flat during the month, suggesting that consumers reacted to the tax increase by opting to save money and dine at home. Grocery stores saw a 0.6 percent increase in sales as a result.

"Consumers held up a little bit better than people were expecting, considering the rise in payroll taxes," said Russell Price, a senior economist at Ameriprise Financial Inc. "We've been seeing pretty good, though certainly not robust, employment growth. That's providing consumers with the income fuel that they need to maintain their spending."

And some retail store chains reported strong individual numbers in January, suggesting that at least some consumers stayed in the market even after the tax cut took effect. Some of those strong sales results reflected retailers' offering holiday and post-holiday discounts.

The stock market appeared to take the news in stride, with the Dow Jones industrial average holding near a five-year high at 14,019 shortly after the opening of trading Wednesday on Wall Street. The Dow ultimately took a small loss of 35 points -- 0.26 percent -- to 13,982.91 for the day.