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Retail sales slipped in January

/ Source: The Associated Press

Retail sales fell 0.3 percent in January — the weakest showing in five months — as a big drop in demand for cars offset strength at clothing and department stores. Spending was powered mostly by consumers anxious to use holiday gift cards.

The Commerce Department reported that last month’s decline in retail sales followed a huge 1.1 percent surge in December. Both months were heavily influenced by a swing in activity at auto showrooms.

In January, car sales fell by 3.3 percent, the biggest decline since last June. Car sales had surged by 4 percent in December as buyers had flocked to showrooms to take advantage of attractive incentive offers.

Excluding auto sales, retail sales rose 0.6 percent in January, twice what analysts had been expecting, after sales excluding autos had risen 0.3 percent in December.

Consumer spending, which accounts for two-thirds of total economic activity, is expected to remain solid this year but at a slightly slower pace than in 2004, reflecting in part a belief that activity will cool as the Federal Reserve keeps pushing up interest rates.

Federal Reserve Chairman Alan Greenspan will deliver the central bank’s semi-annual monetary report to Congress on Wednesday, an event being closely followed by financial markets anxious to discern whether the Fed plans to keep raising interest rates at a moderate pace of quarter-point moves in coming months.

The 0.3 percent drop in retail sales in January was the biggest setback since a similar 0.3 percent fall last August.

In addition to the 3.3 percent decline in auto sales, sales at stores specializing in products for the home also suffered setbacks. Sales at appliance and electronic stores were down 0.6 percent while sales at hardware stores dropped by 0.3 percent and furniture store sales dipped 0.1 percent.

Sales at clothing and clothing accessory stores jumped 1.8 percent in January while sales at general merchandise stores, a category that includes department stores, rose by 0.9 percent.

These solid gains were attributed in part to the fact that consumers who received gift cards as Christmas presents chose to redeem them during January clearance sales.

Department store sales were also bolstered by consumers attracted by a fresh assortment of spring clothes, which lured buyers despite late-month snow storms in the Midwest and Northeast.

Sales at restaurants, bars and coffee houses rose by 0.3 percent while grocery store sales were up 0.5 percent.

Sales at gasoline stations were up 1.8 percent in January, after having fallen 0.2 percent in December. Last month’s increase reflected in part higher gasoline pump prices.