Americans tightened their pocketbooks in January, with retail outlays falling for the month across the board and a sharp decline in purchases of building materials, motor vehicles, and in stores to begin the year, data from the U.S. Census Bureau showed.
Retail sales fell by nearly a percent last month to a little over $700 billion, lower than December's figure of about $706 billion from a 0.4 percent increase. Building material and garden equipment sales fell by more than 4 percent, store retailers saw a 3 percent drop while the motor vehicle segment saw a nearly 2 percent decline, the data showed.
The decline in retail sales was worse than the 0.2 percent drop forecast for the month. But on a yearly basis, retail sales were up 0.6 percent from January 2023.
Analysts suggest the fall in spending could be due to price pressures that Americans are feeling amid elevated prices.
"Retail sales tumbles much more than expected as the consumer continues to find itself under more pressure from spending and stick inflation," Alex McGrath, chief investment officer at South Carolina's NorthEnd Private Wealth, said in a note shared with Newsweek.
The Consumer Price Index (CPI) accelerated at a slower pace in January compared with the prior month. But the reading came in higher than expected, a signal that inflation continues to remain sticky even as the Federal Reserve has tightened financial conditions to cool soaring prices. At 3.1 percent CPI inflation last month, that's still higher than the 2 percent target policymakers want to see.
Some economists suggested that the January retail sales numbers may be seasonal too.
"The weakness in January is partly noise. Bad weather hit auto and building material sales. Gas prices declined, which reduces retail sales in nominal terms but is a plus for consumers," Michael Pearce, deputy chief U.S. economist at Oxford Economics, told Newsweek.
The paring back of sales at retail stores may partly be due to the post-holiday season cooling, and wintry weather conditions may continue to impact on retail sales, Pearce added.
"The numbers could remain choppy in February because of the weather, seasonal effects around the leap year and the ramping up of tax season. But fundamentally, the consumer is strong, with real incomes rising at a strong pace and household balance sheets in great shape," he told Newsweek.
Bill Adams, the chief economist for Comerica Bank in Dallas, echoed Pearce's take on how the weather may have shaped the retail sales outcome for January.
"Severe winter weather across much of the country depressed retail sales in January," he said. "This weakness typically reverses quickly as weather returns to normal and people catch up on spending plans delayed by the cold and snow."
For Jeffrey Roach, chief economist for LPL Financial, the data offered a shifting in the way that the consumer was spending amid a tightened monetary environment.
"Consumers pulled back on purchases for durable goods at physical stores but increased spending at restaurants and online," Roach said in a note shared with Newsweek. "From this report, we see that consumers are likely becoming more price conscious, and perhaps this is the first sign that the spending splurge is nearing the end."
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
