In a break from recent years, American consumers began the year on a weak note as retail sales dropped by 0.8% on a monthly basis in January, according to Census Bureau data released on Thursday.
January’s decline does not necessarily mean that consumers are not still on a strong footing.
That drop was the first time since 2018 that sales at retail stores, online and food service places posted a decline in January.
While the drop might signal a hangover from the holiday shopping season, we don’t think that it necessarily means that consumers are not still on a strong footing. Instead, the break in the spending pattern should highlight the fact that there are seasonal factors in play.
Over the past five years, consumers often pulled their holiday shopping into the September-November period, leaving December weaker. But this year, consumers spent big in December, leading to a much weaker January.
On top of that, the retail sales data mostly covers spending on goods. When it comes to services, we should expect a strong month of spending that aligns with the elevated service inflation number released recently.
We think consumers will remain on a strong footing given the hundreds of billions in excess savings that remain on their balance sheets, as the rapid disinflation of the past couple of months translates into positive real income growth.Read more of RSM’s insights on the economy and the middle market.
Inside the data, the decline in retail sales was driven mostly by the drop in automobile sales, which fell by 1.7% on the month. Sales of building materials, gasoline and online also posted sharp declines, falling by 4.1%, 1.7% and 0.8%, respectively.
Spending on food was a bright spot, rising by 0.7% at food and drinking places and by 0.1% at food and beverage stores.
