Retail sales dropped 0.3 percent in January. Markets were expecting a 0.2 percent increase. Furthermore, control group sales were revised down from an increase of 0.3 percent to a drop of 0.2 percent in December.
Disappointing Start to the Year for Retail Sales
Retail sales disappointed at the start of 2018 by dropping 0.3 percent while markets were expecting them to grow 0.2 percent. Excluding automobile and gasoline stations’ sales, retail sales were down 0.2 percent versus market expectations of a 0.3 percent increase. December’s 0.4 percent increase for the overall index remained unchanged, but retail sales ex-automobile sales was revised down from an increase of 0.4 percent to just 0.1 percent.
Even the 1.6 percent increase in gasoline stations’ sales was not enough to push retail sales higher in January. The biggest culprits for the decline in retail sales during the month was a 1.3 percent decline in motor vehicle & parts dealers’ sales; a 0.4 percent decline in furniture & home furniture stores’ sales; a 2.4 percent drop in building material & garden equipment & supplies dealers’ sales; a 1.2 percent decline in health & personal care stores’ sales and a 0.8 percent decline in sporting goods, hobby, book & music stores’ sales.
Growth sectors were sales at electronics & appliance stores, up 0.5 percent, clothing & clothing accessories stores’ sales, up 1.2 percent and miscellaneous store retailers’ sales, which increased 1.6 percent. Even the "mighty" nonstore retailer sector had issues in January, as it posted flat month-on-month growth. Meanwhile, on the service side of the report, food services & drinking places was also flat in January.
Although we were expecting a relatively strong performance for retail sales in January following the strong end of 2017 performance for the sector, it is relatively clear that there may once again be some seasonal factors at play. This is something that has been a staple for the first quarter economic numbers since the recovery from the Great Recession.
Revision to December Control Group Sales
Control group sales, which are the part of the retail sales report that go directly into the calculation of GDP, was flat in January while markets were expecting a strong 0.4 percent increase. However, the bad news is that inflation was also very strong in January while it was revised up for December. Furthermore, the strong downward revision to control sales for December, which were originally reported up 0.3 percent and were revised down to a decline of 0.2 percent, will probably make analysts revise down the strong print for personal consumption expenditures in the final quarter of 2017.
We remain positive on the consumer this year even though the first look at consumption in January was not what we were expecting. As we have pointed out before, perhaps the biggest risk for consumers, as well as for the U.S. economy this year, is higher inflation, which has the potential to cut into the purchasing power of income and push consumers to the sidelines. For now, credit is flowing and consumers are using it.
