The US Department of Commerce reported on Friday (February 14th) that retail sales in the United States in January posted the largest drop in nearly two years, significantly surpassing economists’ expectations.
A report released by the US Census Bureau, a branch of the Commerce Department, showed that retail sales in the US decreased by 0.9% in January compared to the previous month, while the retail sales growth in December was revised upward from the initial reported 0.4% to 0.7%. The data released by the Commerce Department was even worse than the 0.2% decline estimated by Dow Jones & Company, marking the largest drop since March 2023.
On an annual basis, retail sales in January increased by 4.2%.
Retail sales are adjusted for seasonal fluctuations but not for inflation. Prices rose by 0.5% in January.
Excluding auto and gasoline sales, retail sales in January fell by 0.5%, far below the economists’ widely expected increase of 0.3%.
Sales at sporting goods, music and book stores dropped by 4.6%, online stores saw a decrease of 1.9%, and sales of automobiles and parts decreased by 2.8%. However, sales at gas stations and restaurants both increased by 0.9%.
As consumer spending accounts for about two-thirds of all economic activity in the US, the sales data for January suggest that the economic growth in the first quarter of the US may be slowing down.
Economists speculate that US consumers are tightening their wallets due to concerns that import tariffs may lead to price hikes and uncertain economic prospects. Additionally, the severe snowstorms and cold weather experienced in most parts of the US last month, along with the widespread deadly wildfires in California, may have also impacted sales.
Robert Frick, a corporate economist at Navy Federal Credit Union, commented on the retail sales data in January, saying, “The magnitude of the decline is significant, but there are several mitigating factors that indicate there is no reason to panic. Some of the factors can be attributed to the inclement weather, while others are related to a drop in auto sales in January after an unusually strong surge in December due to generous dealership incentives.”
“Frick added, “Especially given the substantial upward revision in the December data, the rolling average of consumer spending remains stable.”