Retail sales grew at a modest pace in January, as an increase in spending on building materials was offset by weak growth in online sales, signaling more caution among consumers in the new year.

Sales rose by 0.3% from December, and were up 4.4% from a year earlier, the Census Bureau said today. 

But while overall growth was solid in January, the lackluster performance of specific categories, like non-store retailers, may signal a shift in consumer comfort. With coronavirus set to impact the U.S. market next month, economists are viewing consumer spending as a telling marker of how the economy will fare. 

The outbreak of the coronavirus in China has fractured that country’s economic performance. How this will affect the U.S. is still pending, but it could penetrate significant sectors such as U.S. manufacturing, which is hugely reliant on imports from China.  

Some economists see the moderate but steady increase in retail sales as a sign of stable consumer confidence. But skeptics see evidence that the economy is not performing as well as some other indicators suggest. 

“Nobody is acting like this economy is really hot,” said Robert Brusca, chief economist at Fact and Opinion Economics, citing a dip in hours worked and wage deceleration as proof.“The job market looks tight but doesn’t act like it’s tight.”  

Despite less than exciting results for retail sales as a whole, some categories had strong numbers. A more robust housing market, fueled by lower mortgage rates, drove sales of building materials. The category saw a 2.1% uptick from December, compared to a 1.3% decrease from 2019. “More extremes were concentrated in building materials and supplies than we expected,” said Michael Englund, economist at Action Economics LLC. 

But growth in retail sales did not accelerate in spite of low unemployment and moderate wage gains. The weakness was partly the result of slower growth in sales at non-store retailers. The segment, which includes e-commerce platforms, rose 8.4% from a year ago, weaker than the 10% annual growth they showed for much of 2019. 

Generally, sales results from non-store retailers out-performs the overall index, Englund said. 

“That pattern wasn’t particularly evident in January numbers,” he added. 

There are a number of factors, such as a rise in costs, that could have influenced slower growth for a sector that normally performs strongly. “The cost of goods for e-commerce has gone up,” said Stan Shipley, chief economist at Evercore ISI.

Shopping habits are shifting away from brick and mortar stores to more online purchasing, as evidenced by last month’s decline in store sales for both electronics & appliances (-0.5%) and clothing and accessories (-3.1%). Now, e-commerce sales, which had a 0.3% increase in January from December, is becoming more essential in measuring consumer activity.

With trade uncertainties still underway, economists are paying close attention to consumer confidence, a significant indication of the health of the economy, for a sign of a slowdown in spending. 

According to a report released yesterday by Ipsos, a market research company, consumers were showing less confidence in the beginning of February than they were at the top of January. Fear about the spread of coronavirus contributed to diminished optimism about the future of the economy, which posed a threat to purchasing patterns. 

However, consumer comfort has remained solid and actually grew to 100.9 from last month’s 99.8, a 1.1% increase and the highest since March 2018, according to the University of Michigan’s consumer sentiment index released today. 

But how improved confidence among households will be impacted by coronavirus remains to be seen. 

“Down the road, next month we may have more effects of that built into the data,” Brusca said.