Consumer spending saw a sharp decline in January, raising concerns about a potential slowdown in economic growth, according to a Commerce Department report released Friday.
Retail Sales Decline More Than Expected
Retail sales fell 0.9% for the month, following an upwardly revised 0.7% increase in December. This drop was significantly worse than the Dow Jones estimate of a 0.2% decline. The sales figures are adjusted for seasonality but not inflation, which rose 0.5% in January.
Excluding autos, retail sales fell 0.4%, missing consensus expectations for a 0.3% increase. Additionally, a “control” measure that removes nonessential categories and directly factors into GDP calculations declined 0.8% after a strong 0.8% rise in December.
Impact on Economic Growth
Since consumer spending accounts for about two-thirds of U.S. economic activity, the weak sales figures point to a potential deceleration in first-quarter GDP growth.
Sector Performance
- Sporting goods, music, and book store sales fell 4.6%.
- Online retail sales dropped 1.9%.
- Motor vehicles and parts sales decreased 2.8%.
- Gas stations and food and beverage establishments each saw a 0.9% increase in sales.
Market Reactions
Stock market futures remained slightly negative after the report, while Treasury yields declined. Investors increased bets that the Federal Reserve may cut interest rates as early as June.
Expert Commentary
Robert Frick, corporate economist at Navy Federal Credit Union, provided a measured response to the drop: “The drop was dramatic, but several mitigating factors show there’s no cause for alarm. Some of it can be chalked up to bad weather, and some to auto sales tanking in January after an unusual surge in December due to fat dealer incentives.” Frick added that the rolling average of consumer spending remains solid.
Inflation Trends
Inflation remains above the Federal Reserve’s 2% target. The Consumer Price Index (CPI) increased 0.5% in January, resulting in a 3% annual inflation rate. However, the Producer Price Index (PPI), a measure of wholesale prices, indicated some easing in key input costs.
Import and Export Price Trends
Additional economic data from the Bureau of Labor Statistics showed that import prices rose 0.3% in January, marking the largest one-month increase since April 2024. Year-over-year, import prices climbed 1.9%.
- Fuel prices surged 3.2%, the highest gain since April 2024.
- Food, feed, and beverage costs rose 0.2% after a 3% jump in December.
- Export prices increased by 1.3%.
Conclusion
While January’s consumer spending decline is concerning, economic analysts suggest that seasonal factors and auto sales fluctuations played a role. With inflation still above target and price pressures in imports and exports, the Federal Reserve’s response in the coming months will be closely watched.
