A combination of factors—including the holiday hangover, seasonal noise, wildfires and severe cold weather—contributed to the downside surprise in retail sales in January.
Sales fell by 0.9% on the month with the control group—which feeds into GDP—falling by 0.8%.
Even though the data was reported as seasonally adjusted, the holiday hangover has been magnified over the past three years because of the residual effects of the pandemic, early shopping and consumers pulling forward their purchases in anticipation of potential tariffs.
This is one of those rare occasions where looking at the 12-month change makes more sense than the monthly metric.
Sales rose by 4.8% year over year, the second-highest level in nearly a year, since February 2024. This drop closely mirrors last year’s decline, which also occurred around January.
The underlying strength of the economy remains intact: a solid labor market, strong growth and high wage gains. If that strength persists, we should expect sales to rebound.
But that is a big “if” given how likely trade policies could quickly shift the tide, potentially pushing sales even lower as prices rise. For this reason, we remain cautious about overreacting to this month’s data.
Read more of RSM’s insights on the economy and the middle market.
The data
Eight out of 12 main categories posted declines in January. Autos—which account for the largest portion of total sales on dollar terms—fell by 2.8%.
As this category was the biggest driver of sales increases in the prior months, the drop reaffirmed our call that this was more of a shopping hangover rather than weaknesses in spending.
- Nonstore sales, made up of mostly online sales, also posted a sharp drop of 1.9%.
- Food sales were down by 0.1% at stores, but up by 0.9% at restaurants and drinking places.
- Gasoline sales were up by 0.9%, driving partly by higher prices at the pumps.
