Retail sales growth pauses as higher taxes kick in

WASHINGTON (Reuters) - 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.

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 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.

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 homebuilding 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.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)