U.S. retail sales fell more than expected in January, signaling a potential slowdown in the economy.
Sales declined 0.9% in January from December 2024, according to data released Friday by the U.S. Census Bureau. That was worse than the 0.2% decrease expected by economists, and represented the largest monthly decline since March 2023.
The report marked a departure from four consecutive months of retail sales growth, signaling that the economy may be slowing as consumers reduce spending amid persistent inflation. Yet, economists argued that the sudden drop doesn’t necessarily point to a broader economic downturn, citing the holiday hangover and unusually cold winter weather as key factors. December retail sales were also revised up to reflect a 0.7% increase, boosted by the holiday shopping rush.
“The sharp drop in general retail sales is much less concerning than it may seem,” said Tuan Nguyen, economist at RSM US LLP.
In January, much of the nation faced extreme weather conditions, including abnormally low temperatures, widespread snowfall, and wildfires in California. Such conditions typically discourage shopping and dining out, which may have depressed sales early in the year.
Still, the declines were sharper and more widespread than expected, suggesting that, alongside rising costs, consumers may be pulling back on spending.
Discretionary spending saw notable declines, with sales at sporting goods, hobby, music, and book stores dropping 4.6%, clothing stores down 1.2%, and furniture and home furnishing stores decreasing by 1.7% from December. Even e-commerce, which rarely experiences sharp declines, fell by 1.9%.
Evolving economic policy changes also may have influenced consumer behavior. Since assuming office, President Donald Trump has aggressively redefined U.S. economic policy, with a particular emphasis on imposing tariffs.
As trade barriers are expected to raise the cost of imports, many Americans seem to be scaling back their spending in anticipation of higher prices, with consumer sentiment declining. The University of Michigan Consumer Sentiment Index dropped to 67.8 from January's final reading of 71.1, with the 3.3 point drop confirming a more cautious outlook among consumers.
Consumer prices rose more than expected in January and were up 3 percent from a year earlier —above the Federal Reserve's 2% target—according to a Wednesday report from the Bureau of Labor Statistics.
The jump in prices “kind of gave consumers a pause, and then all the talk of uncertainty coming out of Washington, tariffs and immigration and all that, that's not a good environment for consumer spending,” Stan Shipley, Managing Director at Evercore ISI.
