U.S. Retail Sales Dip in January as Shoppers Pull Back After Holiday Splurge

In the aftermath of the lively December holiday shopping period, U.S. consumers tightened their belts more than analysts expected in January, leading to a drop in retail sales. Shoppers were seen perusing stacks of sweatshirts at a Costco warehouse in Timnath, Colorado, exemplifying the cooled consumer spending that followed a robust end-of-year.

The U.S. Department of Commerce released a report last Thursday indicating a 0.8% decline in retail sales in January compared to the previous month. December had witnessed a revised growth of 0.4%, suggesting a sharper downturn than anticipated in the new year. Excluding auto dealers and gas stations, the core retail sales saw a reduction of 0.5%, surpassing the economists' prediction of a minor 0.1% drop. This represented the lowest monthly figure since March of the previous year.

Despite predictions of reduced consumer spending towards the end of last year due to credit card debt and diminished savings, consumer expenses remained largely supported by a solid job market and rising wages. Surprisingly, at the beginning of 2024, the employment sector experienced a hiring boom with an addition of 353,000 jobs in January, signaling that the substantial interest rate hikes intended to slow the economy had not yet taken full effect.

However, signs of slowing consumer spending emerged in January. While restaurants enjoyed a modest 0.7% sales increase, other sectors did not fare as well. Clothing and accessory stores experienced a 0.2% dip, and building material and supply dealers saw sales plummet by 4.1%, reflecting the ongoing weakness in the housing market. General merchandise stores managed to maintain their sales levels, but online retailers reported a 0.8% decrease in sales.

Although U.S. consumer inflation cooled in the last month, it remains high. The consumer price index rose by 0.3% from December to January. Year-over-year, prices have increased by 3.1%. This is significantly lower than the mid-2022 peak inflation of 9.1%, but still substantially above the Federal Reserve's 2% target. Public frustration with inflation has become a major issue in President Joe Biden's reelection campaign.

retail, consumer, economy