Retail sales fell 0.3% in January according to the advance Census Bureau report – well shy of expectations for a 0.2% rise.
Sales at gasoline stations rose by 1.6%, but the gain was more than offset by a 1.3% decline at motor vehicle & parts dealers. Excluding autos and gas, retail sales were down by 0.2% on the month, widely missing the expected 0.5% gain.
After several strong months, spending on building materials (-2.4%) pulled back. This decline was only half made up for by a 0.7% rise in spending at restaurants and bars. Excluding gas, autos, building materials, and food services, the so-called ‘control group’ used in calculating GDP was flat on the month – shy of the 0.5% gain expected. Gains in the control group were led by miscellaneous (+1.6%), clothing (+1.2%) and electronics (+0.5%). On the other hand, health & personal care (-1.2%), sporting goods (-0.8%) and furniture (-0.4%) noted declines. Most other categories were little changed.
Key Implications
This was not the kind of report we were expecting. After a string of solid retail spending reports to cap off 2017, the decline in January is a bit of a headscratcher. The latest figures point to a weaker performance of consumer spending in the first quarter – around 2.4% (down from 2.8%), with the downgrade flowing through to real GDP, which is expected to increase by around 2.5%.
The one encouraging factor was that the entire decline was attributed to a single category: autos. But, sales at motor vehicle dealers have been declining due to the dissipation of the boost related to replacement of damaged/destroyed vehicles during Harvey and Irma. The same can be said for building materials and furniture, which were previously boosted by replacement. From that standpoint, the pullback is natural and not overly alarming. The fact that many discretionary spending categories saw gains offers further evidence that the decline is transitory and not the beginning of a new trend.
Ultimately the January decline in retail sales appears to be more of a transitory blip, with spending likely to return to a stronger performance in the following month. This is especially the case given the strong payroll growth, rising wages, and and tax reform that will leave more disposable income in consumers’ pockets.
, with the downgrade flowing through to real GDP, which is expected to increase by around 2.5%. ){kind=link}