Cheaper gas lowers U.S. retail sales

WASHINGTON - U.S. retail sales fell sharply last month as gas prices plummeted and auto sales slowed. But excluding those volatile categories, Americans stepped up their spending a bit.

Retail sales dropped 0.8 percent in January, the Commerce Department said Thursday, following a 0.9 percent decline in December. The dollar value of gas station sales plunged 9.3 percent, the largest drop in six years. Auto dealer sales also fell for the second straight month.

Outside those categories, sales increased 0.2 percent after a flat reading in December. The modest gain suggests Americans are still cautious about spending their windfall from lower gas prices, which economists expect will save the typical family $750 this year.

Cheaper gas and strong hiring have sent consumer confidence to seven-year highs, a sign spending should pick up soon. Consumers did spend more last month at electronics, building materials and general merchandise stores. Restaurants and bars notched another month of solid business. Restaurant sales have jumped 11.3 percent in the past year.

Retail sales account for just over a quarter of consumer spending, with the rest going to services such as health care and haircuts. It can take several months for the impact of lower gas prices to show up in greater spending by shoppers.

Economists forecast that stronger consumer spending will provide critical support to the U.S. economy this year.

Other trends should also bolster consumer spending this year. Healthy hiring has meant that 3.2 million more Americans are earning paychecks than 12 months ago. Employers added more than 1 million jobs from November through January, the strongest three-month pace since 1997. And average hourly pay rose 0.5 percent last month, the most in six years, the Labor Department said Friday.

While economists cautioned against reading too much into one month's figure, it suggested employers may be starting to raise pay. Overall, consumers ramped up their spending in the October-December quarter by the most in nine years.

Economists expect that healthy pace of spending to continue this year and power the economy to a 3 percent growth rate for the first time in a decade.

Gas prices nationwide fell for 123 straight days to nearly a six-year low of $2.03 a gallon in January, according to AAA. That was the lowest in more than five years. Pump prices have since risen to $2.21 a gallon, but that is still $1.10 cheaper than a year earlier.