US Retail Sales Fall in January, Signaling Potential Economic Slowdown
Americans have scaled back their spending more than anticipated in January, following the usual holiday season splurge. According to the Commerce Department’s report on Thursday, retail sales dropped by 0.8% in January compared to the robust pace in December, where they had risen by a revised 0.4%. The decline was larger than the projected 0.10% drop, marking the lowest monthly figure since March of the previous year. Economists attribute part of this pullback to snowy weather conditions, but they also suggest that shoppers may finally be feeling the strain of higher interest rates and other financial obstacles, indicating that the economic momentum from the end of 2023 could be fading.
The retail sales report could potentially bring positive news, as it suggests that the Federal Reserve might finally start cutting rates. This would provide relief to both shoppers and businesses seeking lower borrowing rates.
Andrew Hunter, deputy chief U.S. economist at Capital Economics, wrote in a report, “Real consumption appears to have declined in January and, even allowing for a recovery over February and March, growth will slow sharply in the first quarter.” He further added, “The upshot is that Fed officials may not need to worry much longer about the possibility of continued economic resilience reigniting inflation.”
Despite higher borrowing costs and elevated prices, household spending continues to be fueled by a strong job market and rising wages. In January, employers added 353,000 jobs, providing further evidence that the highest interest rates in two decades, intended to slow down the economy, have yet to take hold. However, last month’s slowdown was widespread, with shoppers cutting back their spending in nine out of thirteen categories, including clothing and accessory stores, as well as health and personal care businesses. Sales at building materials and garden suppliers fell significantly by 4.1%, reflecting the impact of bad weather. Online sales also experienced a decline of 0.8%. On the other hand, a solid gain at restaurants indicated that spending on services remains robust.
Consumer inflation in the United States cooled down last month but remained high. The U.S. reported that the consumer price index rose by 0.3% from December to January, with prices up 3.1% compared to the previous year. Although this is far below the peak inflation of 9.1% in mid-2022, it is still significantly above the Federal Reserve’s target level of 2%. This has become a pivotal issue in President Joe Biden’s bid for re-election, as public frustration with inflation grows.
Major retailers, including Walmart and Macy’s, are set to report their financial results for the fiscal fourth quarter, which includes the critical holiday period, starting next week. However, weaker sales at some of the big food and beverage companies could indicate slower sales at stores. Kraft Heinz reported a slip in fourth-quarter sales as some customers, affected by inflation, opted for cheaper brands or reduced their purchases.
Several food makers have raised product prices due to inflation, which has helped maintain profits. However, this can come at the cost of sales as customers seek bargains elsewhere. PepsiCo, for example, experienced a similar trade-off after multiple price hikes and posted a rare decline in revenue. Bill Barton, CEO of Bob’s Discount Furniture, noted that the chain has benefited from shoppers trading down from department stores to more affordable options. The starting price for bedroom sets at Bob’s is $999. Barton explained that the company keeps costs down by offering fewer choices than department stores but maintaining deep inventory. However, shoppers remain cautious about spending on big-ticket items due to higher borrowing costs. Additionally, high mortgage rates have dampened furniture sales. Barton expressed that lower rates would positively impact furniture sales and relieve pressure on consumers in multiple ways.
One notable bright spot in the retail sector has been the beauty industry, which has experienced a surge in sales due to post-pandemic indulgence in self-care and grooming products. E.L.F. Beauty raised its annual profit and sales outlook after reporting strong sales gains in the latest quarter, which included the holiday season. CEO Tarang P. Amin expressed optimism about the beauty category, stating, “We’ve long been bullish on beauty. It’s one of these great categories, where particularly with all the pent-up demand from the pandemic, people really expressed themselves.”
It’s important to note that the government’s monthly retail sales report only provides a partial look at consumer spending, as it does not include many services such as healthcare, travel, and hotel lodging.
In conclusion, the recent decline in US retail sales in January suggests a potential economic slowdown. Shoppers may be feeling the impact of higher interest rates and other financial hurdles. However, despite these challenges, household spending continues to be supported by a strong job market and rising wages. The retail sector is experiencing mixed results, with some categories seeing a decline in sales while others remain sturdy. Inflation remains a
