Retail sales had their worst start of the year since 2014, falling more than the modest decline expected by economists.
Sales were down 0.9% from December, according to data from the Commerce Department, which includes sales online, in stores and at restaurants. But sales were up 4.2% from January 2024, and the January decline followed several months of positive sales growth.
Concurrently, a revision of the December 2024 retail sales numbers from a 0.4% increase to a 0.7% bump slightly eased the pain of the latest numbers.
Economists were not overly worried about the decline in January, which they saw as more of a fluke that doesn’t represent a long-term shift in consumption. They chalked up the contraction to weather, natural disasters and a break from spending after December.
“It comes after four other strong months before,” said Chief Economist at Ameriprice Financial Services, LLC. Russell Price. “It’s more of a one-off breather for consumers more so than it is a change in direction.”
When excluding automobiles and gasoline, the drop was slightly lower at only half a percentage point from last month and equaled the same monthly decline to begin the year in 2024.
The slowdown in sales may have been partly the result of one-off factors that aren’t likely to be repeated in the months ahead. A colder than usual January in the U.S., with parts of Florida and Louisiana seeing snow, had a part to play in people across the country going out to shop less. Wildfires in California also ravaged the second largest city in the country, Los Angeles, killing 29 people, forcing tens of thousands of people from their homes and severely affecting air quality in the metro area.
However, nonstore retailers in the e-commerce space also saw a decrease in sales so the frigid temperatures and tragic LA fires weren’t the only factors to blame for decreased retail sales.
The decline could suggest consumers are starting to struggle after years of inflation. Prices rose 0.5% in January over the previous month and household debt rose in the last quarter of 2024 reaching an all time high of $18.04 trillion. Interest rates don’t seem to be moving anytime soon, meaning credit card debt isn’t easing up anytime soon either. That may have led consumers to take a break from shopping after the holidays.
“Consumers racked up a lot of debt in December and then they looked at a lot of higher prices in January and pulled back their spending,” said Sam Saliba, an economic analyst at Jefferies LLC.
The promises Trump made to institute tariffs were partly kept, as 10% ad valorem tariffs were slapped on to imports from China which will have an inflationary impact on certain goods such as microphones, television sets and heaters. Across-the-board tariffs were not implemented on our two largest trade partners, Mexico and Canada, but other tariffs on steel, aluminum and automobiles could be coming down the pike in the coming months.
Consumers didn’t end up buying more in anticipation of tariff-induced price increases and sales may continue to trend downwards as more tariffs pile on. However, economists aren’t fazed by one bad report and are awaiting the next couple months to decide whether or not to raise alarm bells.
“It’s too early to tell, probably, for February and March,” Saliba said. “There is risk that if weakness like this does persist for February and March, that we do actually get a negative GDP.”