U.S. January Retail Sales Fall 0.9%, Indicating Possible Economic Slowdown

Retail Activity Declines After Year-End Shopping Surge Amid Weather and Economic Concerns / AFP

U.S. retail sales experienced a significant decline, signaling a potential slowdown in the U.S. economy after a strong year-end shopping season. The U.S. Department of Commerce reported a 0.9% decrease in retail sales compared to December, bringing the total sales to $723.9 billion. This drop was much steeper than the anticipated 0.2% decline forecasted by economists. Although the retail sales increase for December was revised upwards to 0.7% from the previously reported 0.4%, the downturn in January highlights a cooling effect in consumer spending after the holiday rush.

Traditionally, consumer spending tends to dip in January as shoppers focus on paying off credit card bills accumulated during the festive season. Moreover, harsh winter weather likely contributed to the reduction in consumer activity, as the extreme conditions can deter outdoor shopping and travel. Sales excluding automobiles also fell by 0.4%, underperforming the market expectation of a 0.3% increase.

Particular sectors witnessed more pronounced declines. Sports goods, music, and bookstores saw a 4.6% drop in sales from the previous month, while online outlets experienced a 1.9% decrease, and automotive parts and sales dropped by 2.8%. On the other hand, gas station sales increased by 1%, likely due to higher fuel prices.

Retail spending is a significant component of the U.S. economy, accounting for nearly two-thirds of economic activity. The downturn in January’s retail figures points to the potential for a softer economic growth rate in the first quarter of 2025. Concerns about inflation and the possibility of price hikes also loom large. Specifically, the trade policies enacted by President Donald Trump, which introduced high tariffs on imported goods, could lead to increased costs for consumers, further dampening retail spending.

Economists, including Catherine Juris from CIBC Economics, have suggested that while the U.S. labor market remains strong, the strong consumption seen last year may temporarily slow down in early 2025. In her memo to clients, Juris noted that a temporary pause in consumer activity is likely as individuals adjust after a period of intense spending.