Retail sales rose 0.2% (m/m) in January, beating expectations that called for no change from December. The headline number was revised down for December to -1.6% (previously -1.2%). All told, retail sales haven’t changed much since last September.
Eight of thirteen categories saw sales increases in January. Monthly gains at sporting goods (+4.8%), building materials (+3.3%), non-store retailers (+2.6%), and food and beverage stores (+1.1%) offset declines at gasoline stations (-2.0%, largely a reflection of falling fuel prices). Also of note was that sales of motor vehicles and parts declined 2.4% in January, ending a streak of four consecutive monthly advances.
Excluding the most volatile categories (gas, autos, building materials, and food services), the control group used in calculating GDP staged a decent comeback in January. It advanced 1.1% on the month, beating expectations for a 0.6% gain, and partially reversing the 2.3% decline in December.
Key Implications
January’s retail sales report signals that U.S. consumers spent a little more than expected. This is a positive sign for first quarter consumer spending and GDP, which we expect to have slowed to about half of 18Q4’s 2.8% pace due to weak momentum, and the impact of the 35-day government shutdown.
Looking ahead, we anticipate that tight labor market conditions will persist, supporting strong growth in personal disposable income. This should see consumer spending perk up in the second quarter, and maintain a steady trend in the second half of the year, once again leaving the consumer as the ultimate driver of growth for the U.S. economy for 2019. That said, a number of unresolved risks linger that can easily sideswipe confidence, and therefore spending. Elevated trade tensions and government fiscal uncertainty could continue to weigh on financial markets and confidence for some time yet.
