After the big Christmas shopping spree, Americans refrained from making big purchases, especially those that are usually financed with debt.
Retail sales in January decreased by 0.8% from the previous month. Economists had expected a modest 0.1% decline.
Despite the decline, sales increased 0.6% year over year.
The harsh winter weather likely contributed to the decline in sales in some categories. For example, sales at home improvement stores and garden centers decreased.
Retail sales are adjusted for seasonality, but not for price changes. The consumer price index, a broad measure of price fluctuations facing U.S. households, rose 0.3% in January. Prices of core goods excluding food and fuel fell 0.3%.
The report suggests Americans are cutting back on spending on big-ticket items like cars and electronics. Expenditures at automobile dealers and electronics/home appliance retailers decreased both month-on-month and year-on-year. This could be evidence that the Fed’s interest rate hikes are weighing on spending, since it’s typically a financing purchase.
Online spending fell after a big jump in December, clear evidence of a post-holiday shopping hangover. However, compared to a year ago, online sales still increased by 6.4%.
Sales at clothing retailers and sporting goods and hobby stores also declined. Gas station sales declined, likely due to both the weather and lower gas prices.
In contrast, Americans spent more on groceries and restaurants. Both prices rose significantly in January, according to the Consumer Price Index. This suggests that some of the weakness in other categories may be due to food inflation.
A sharper-than-expected decline in retail sales could raise expectations that the Fed will cut interest rates later this spring or early summer. Investors began to worry that the economy was overheating after a strong labor market report and higher-than-expected inflation. Disappointing retail sales figures counter these reports.
