Retail Sales Tumbled in January Much More than Expected

February 15, 2024

U.S. consumers seem to have set a New Year’s resolution to cut back on spending as retail sales fell sharply, potentially sounding an early warning sign for the economy.

Retail sales, which include not only online and in-store shopping but spending at bars and restaurants as well, in the U.S. fell by a seasonally adjusted 0.8% in January from a month prior, according to a release from the Commerce Department.

The larger-than-expected decline comes after a robust holiday shopping season, but December’s impressive numbers were slightly less impressive than initially thought, as the Commerce Department also downwardly revised the month’s gain to 0.4% from the initially reported 0.6%.

A slowdown in spending between December and January is common, but economists were expecting a much smaller dropoff of 0.3%. The month-over-month decline in January was the largest since March 2023.

The pullback may be exaggerated by technical factors. The seasonal adjustments that the Commerce Department applied to January’s figures were less supportive than in past years. The weather also likely played a role, with cold weather and snow storms gripping much of the nation during the month. The fact that sales at hardware and lawn and garden stores plummeted by a seasonally adjusted 4.1% from the month prior demonstrates just how much weather weighed on the month’s sales.

Still, the report paints the picture of a consumer base that may finally be starting to buckle after a prolonged period of climbing prices. While retail sales figures are seasonally adjusted, they are not adjusted for inflation. On an annual basis, retail sales were up just 0.6% in January from a year prior. Inflation over that same period amounted to 3.1%, meaning that consumers are failing to keep pace with inflation.

Consumer spending accounts for roughly two-thirds of all economic activity, and consumer resiliency powered the unexpected growth seen in the latter part of last year. A pullback in consumer spending would mean a much weaker outlook for growth this year.

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