January retail sales drop sharply.
The advance report for retail sales plummeted by 0.9 percent for January, offset only modestly by upward revisions to prior months. Data on unit sales for light vehicles had already shown a big decline, leading to expectations for little change in retail sales for the month – but this sharp fall was a big negative surprise. Some of the decline in retail sales may have come from worse-than-usual weather (plus fires in California), and we’ll see if there’s a rebound in February.
Declines in retail sales were broad based, so it wasn’t just light vehicle sales. The retail control group (excluding autos, gasoline, and furniture), fell by a large 0.8 percent. This is what most analysts view as a core measure of retail sales, and it was clearly weak. Even nonstore retailers (mostly e-commerce) dropped by 1.9 percent for the month.
As we often note, one month’s worth of data is not a trend (even a couple or three months may not be enough), so the January data on retail sales don’t necessarily mean that consumers have decided to cut back significantly on their spending – perhaps leading to slower overall economic growth. But the magnitude and breadth of the decline are worrisome, and if it persists it would make the Fed’s job of maximum employment with stable prices more difficult. Of course, the job numbers remained solid through January, but if consumers really do pull back then the job market will have to follow.
This week’s economic data weren’t good for the economy – with higher CPI inflation and the sharp drop in retail sales. We don’t expect these trends to continue (by year-end inflation should be modestly lower than it is today, although probably not at the Fed’s long-term goal of 2.0 percent, while economic growth should remain a bit above the 2.0 percent trend rate), but this could be a signal that things will be bumpy in the near term.
David W. Berson, Ph.D., CBE
Chief US Economist
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