US retail sales came in weaker than expected for the January period.

Headline retail sales rose 0.3% in the month, smaller than forecasts of a 0.5% gain. While its the 7th straight month that sales were up, it is also the weakest reading in 6 months, going back to last July.

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Taking autos out of the equation sales were up 0.3%, smaller than the expected 0.6%. Finally, if we take both autos and gasoline out of the headline figure, we get a pretty paltry 0.2% gain. The value of January gasoline stations sales surged 1.4%, pushed up by higher prices at the pump.

Some categories posting gains included electronics (0.3%), food and beverage stores (1.3%) and general merchandise stores (0.8%). Non-store retailers, which includes Internet sellers, jumped 1.2% in January.

Personal consumption was up 4.4% in the 4th quarter helping to drive the 3.2% annualized GDP rate during the quarter. We see that the 1st quarter has started off with a slower start.

There are some positive factors that should help consumer spending. A one-year cut in Social Security payroll taxes puts extra money in workers' pockets, but concerns about the housing market can keep some homeowners on the sidelines as they fret about their overall net wealth.

Sales related to the housing industry saw declines. Building materials and garden equipment fell a steep 2.9% and home furnishings sales were 0.3% lower.

Its a mixed report, and one that will put some pressure on the USD as it shows that the engine that was driving US economic activity of late - consumer spending - has eased to start 2011. We'll have to see how this trend develops, but in the short term we could see the set a soft tone in today's trading.

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