Retail sales plunge in January as wildfires, cold give consumers pause
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Snow-covered cars at a Mercedes dealership. Photo: Artur Widak/NurPhoto via Getty Images
Retail sales fell 0.9% in January, the steepest drop in nearly two years, as consumers were held back by California wildfires, unusually frigid conditions, and uncertainty around the outlook for tariffs.
Why it matters: Consumer spending has been the bedrock of the economic expansion over the last few years, and a meaningful deterioration would put growth at risk.
- But it is too early to tell whether the weak January numbers were a one-off aberration or a warning sign.
By the numbers: The headline number was a much steeper drop than the 0.2% decline analysts anticipated, and was the lowest since March 2023.
- A "control group" meant to capture the underlying trend of consumer spending — excluding the most volatile categories of sales like gasoline, motor vehicles and building materials — fell 0.8%.
- The decline was broad-based, with particularly steep drops in sales at furniture and home furnishing stores (-1.7%), auto dealerships (-3%) and sporting goods and hobby stores (-4.6%).
The intrigue: The data is adjusted for the usual seasonal variations, but the unusually cold winter across much of the country likely made consumers less willing to make their way to shopping centers and car dealerships.
- Moreover, wildfires had severe impacts in Los Angeles, the nation's second most populous metro area.
- That said, surveys of consumers did show slipping optimism last month, and some of the drop may reflect apprehension about tariffs or other policy changes.
What they're saying: "We thought a soft January retail sales report was likely given the cold weather and the LA fires, but it is worse than even our pessimistic forecasts," wrote James Knightley, chief international economist at ING, in a note.
- "We will need to wait until the February data to see if this is the start of a more cautious consumer trend or indeed whether it was simply a weather related pull back and we get a subsequent big gain," he added.
