U.S. Retail Sales Opens 2024 on a Subdue Note

Retail sales declined by -0.8% month-on-month (m/m) in January, in contrast to December’s downwardly revised 0.4 % gain (previously 0.6%). This was lower than the consensus forecast calling for a more modest decline of -0.2%.

Trade in the auto sector was down -1.7% m/m, reflecting a decrease in sales at both motor vehicle dealers (-1.8%) and automotive parts and accessory stores (-0.6%).

Sales at gasoline stations continued to pull back for the fourth consecutive month, falling by -1.7% m/m. This largely reflected a further reduction in gas prices. The building materials and equipment category declined by a notable -4.1% m/m.

Sales in the retail sales “control group”, which excludes the above volatile components (autos, building materials and gas) and is used to estimate personal consumption expenditures (PCE) fell by -0.4% m/m. This is its first decline since March of last year and December’s figure was also revised down to 0.6% growth from the previously reported 0.8%.

• Among the control group, positive contributions came from sales at furniture and electronics stores (0.7% m/m) and food and beverage stores (0.1% m/m). Sales at department stores were flat on the month.
• All the remaining categories registered declines. Miscellaneous store retailers registered the largest decline of -3.0% m/m.

Food services & drinking places – the only services category in the retail sales report – rose by 0.7% m/m.

Key Implications

After a noteworthy spending performance to close out last year, consumers took a breather in January, with retail sales pulling back by a sizeable amount to start the new year. However, inclement weather across much of the U.S. may have had some impact on spending through January, which suggests we could see some bounce back over the coming months. After incorporating this morning’s data, consumer spending is tracking 2.5% q/q (annualized) for the first quarter.

Given the stalling out of progress on the inflation front in January, Fed policymakers are likely reassured to see some slowing in retail spending. While much of the inflation uptick is stemming from services, a pullback on the goods side of the economy has helped to contain overall price pressures. As such, a deceleration, if not outright continued decline, in retail spending will help policymakers determine when to cut interest rates – which is seeming more likely to occur in H2.