Retail sales last month rose 0.7 percent, following a 0.5 percent drop in December, as consumers continued to spend at a slower pace than last year.

Automobile sales led the increase in buying in January -- excluding auto purchases, retail sales actually declined 0.1 percent last month -- but clothing sales had the sharpest drop in 17 years, the Commerce Department reported.

Economists yesterday said the sales report suggested that consumer spending will be moderate this year compared with its fast pace during the first half of 1984. Others added that the adverse weather so far this winter could have kept consumers away from stores.

However, many economists remain upbeat and say they still expect the economy to grow at a rate between 3 and 3.5 percent in 1985. But consumers may not be in the lead.

Commerce Secretary Malcolm Baldrige said the increase in retail sales "reflects recent gains in employment and consumer incomes, continued high levels of confidence and lower interest rates. The trend upward in consumer purchases means further growth in domestic production and jobs during the coming year."

Economists said they expect consumers to save more and spend less on durable goods. Stronger spending on nondurables and services, and somewhat slower business investment, should keep the economy expanding.

"This is a very mixed report," said Steven Wood, economist at Chase Econometrics. "The consumer's going to go ahead and continue to spend, but he's really not going to go on a rampage like he did in the first half of last year."

Some of the decline in sales could be attributed to price cutting by retailers who continued after-Christmas sales through the entire month of January to improve their volume, Wood said.

"The erratic behavior of consumers since last spring has led some observers to conclude that the engine of economic growth is sputtering and just about to die," said Data Resources Inc. in a recent report. "A review of the factors that determine spending behavior, however, lends little support to this dire expectation."

The normal business cycle would be expected to reflect slower income growth, higher debt burdens and satisfaction of pent-up demand at this time during an expansion, and a subsequent slowdown in activity, DRI said.

However, DRI said that income gains have been good, consumer attitudes are strong, interest rates are falling and consumers are still willing to expand their credit. In addition, rising stock prices and declining bond rates have increased consumers' wealth, DRI said.

Last month, durable goods sales rose 2.5 percent and were 7.4 percent higher than the previous January. Building materials sales rose 1.1 percent and were 9.6 percent above the previous year.

Furniture sales increased 0.4 percent and were 10.4 percent higher than a year ago, Commerce said. Nondurable goods sales dropped 0.2 percent, after a 0.3 percent decline in December. General merchandise stores' sales declined 4.6 percent and increased only 2.3 percent above the previous year, Commerce said. "This decline follows strong increases in November and December and may have been caused by the record cold during the month," the Commerce Department said