Spending cooled off in January

Associated Press

WASHINGTON — Consumers trimmed their spending on cars as free-financing offers waned, contributing to a modest drop in sales at the nation’s retailers in January.

Outside of autos, sales rose by the largest amount in nearly two years, a promising sign as the country tries to come out of a recession.

Bargain-hungry shoppers last month snapped up clothing that had been heavily discounted and spent briskly on other items, including building supplies, health and beauty products, and home furnishings.

Although overall retail sales dipped by 0.2 percent in January after rising by that same amount the month before, virtually all of the weakness came from a drop in car and truck sales. Excluding auto sales, sales rose by 1.2 percent in January, the biggest advance since March 2000, the Commerce Department reported Wednesday.

That encouraged economists and Wall Street investors. The behavior of consumers, whose spending accounts for two-thirds of all economic activity, will play a key role in the strength and timing of an expected economic rebound this year, analysts said.

"Consumers, who have kept the economy from drowning during this recession, continued to spend, albeit cautiously in January and may be leading the way to recovery," said Oscar Gonzalez, an economist at John Hancock.

On Wall Street, the latest retail sales figures inspired a rally. The Dow Jones industrial average closed up 125.93 points at 9,989.67.

The economy slid into recession in March but consumer spending has managed to hold up relatively well during the slump. Low interest rates, free-financing offers, extra cash coming from a refinancing boom in home mortgages and heavily discounted merchandise have induced people to spend. Consumer confidence also has improved.

"Consumers are doing their part to help the U.S. economy," said Lynn Reaser, chief economist at Banc of America Capital Management. "They are starting the year with a more optimistic mood and willingness to spend."

After cutting short-term interest rates 11 times last year, the Federal Reserve last month cited signs of an economic rebound in deciding against another cut. The Fed’s actions had the effect of pushing the prime lending rate — a benchmark for many consumer and business loans — down to its lowest point since late 1965.

The dip in overall retail sales last month largely reflected a 4.3 percent drop in auto sales. zero-interest-rate financing and other incentives helped to produce a record increase in auto sales in October, but sales have fallen since then as those incentives have waned.

There were other weak spots in Wednesday’s report. Sales of electronics and appliances fell by a record 3.6 percent in January, after rising by 2.1 percent the month before. And, people ate out less. Sales at bars and restaurants declined by 2 percent, following a 4.9 percent increase.