Huffpost Business

January Retail Sales Grow, But U.S. Consumers 'Downshift'

Posted: Updated:

Despite the impact of growing food and gas prices, retail sales showed solid signs of growth In January, according to Commerce Department figures released today.

Consumer spending, which represents about 70 percent of the U.S. economy picked up steam last year, increasing by 4.4 percent in the last quarter of 2010, which according to the Wall Street Journal, was the fastest pace since 2006.

January's retail sales were up 7.8 percent over the same period last year, with sales hitting $381.6 billion. But sales were up just 0.3 percent over December, which fell short of many economists' expectations.

"The consumer downshifted a little, but we're still seeing fairly decent growth in spending," said Sal Guatieri, senior economist at BMO Capital Markets.

Extreme weather in much of the country may have kept shoppers from spending as much as hoped. But tax breaks, including the reduction in social security contributions for employees meant more disposable income, and more spending, said Guatieri.

Steadily rising food and gas prices have been a drag on consumer spending. Clothing sales, for example, fell by 0.3 percent from December to January. Inflation will drain purchasing power to some extent, said Guatieri, but if employment increases, and the stock market continues to make gains, consumer spending will stay on track, he added.

Despite the positive figures, spending largely fell short of analysts estimates. Economists polled by the Associated Press predicted that retail sales would increase by 0.6 percent over December in January instead of the 0.3 percent revealed in the Commerce Department figures.

But take out sales of gasoline, motor vehicles and building materials, and you arrive at a figure closer to actual spending said Guatieri.

"[This] is the measure the Commerce Department uses in it's [gross domestic product] release, and that number showed a good gain, of 0.4 percent," he added.

Consumer spending is still on track to be double last year's rate which would impact GDP Guatieri said. "We're expecting [3.25 percent] GDP growth, up from just under 3 percent last year. The fastest growth in 7 years."

Around the Web

Retail sales rise less than expected in January

Retail Sales Edge Higher, Retail Stocks Are Mostly Lower

Are Food And Energy Spending Crowding Out The Rest Of Retail Sales?

US Futures Fall as Retail Sales Slow; Bahrain Bonds Decline