US retail sales plummet in January; weekly jobless claims decline
February 15, 2024 – 7:53 AM PST
WASHINGTON (Reuters) – U.S. retail sales fell by the most in nearly a year in January, but economists cautioned against reading too much into the decline, noting that winter storms as well as technical factors had distorted the data.
The larger-than-expected drop in retail sales reported by the Commerce Department on Thursday also reflected a sharp fall in receipts at services stations because of lower gasoline prices. Consumer spending remains supported by a fairly healthy labor market, which is keeping wage growth elevated.
“It was a weak start to the year for consumers shopping at the malls, but the harsh winter weather effect looms large,” said Christopher Rupkey, chief economist at FWDBONDS in New York.
Retail sales dropped 0.8% last month, the biggest drop since February 2023, the Commerce Department’s Census Bureau said. Data for December was revised lower to show sales rising 0.4% instead of 0.6% as previously reported.
Economists polled by Reuters had forecast retail sales dipping 0.1%. Retail sales are mostly goods and are not adjusted for inflation. December sales were partially flattered by generous seasonal factors, the model the government uses to strip out seasonal fluctuations from the data.
Unadjusted retail sales typically fall in January. The seasonal factors were less supportive for this January compared to previous years, resulting in the large drop in adjusted sales last month. Economists had cautioned before the release of the data not to read too much into any sharp drop.
“It is hard to know exactly what the ‘right’ seasonal factor is for a given month but the seasonal factors associated with December 2023 and January 2024 look unusual relative to the ones associated with these months in earlier years,” said Daniel Silver, an economist at JP Morgan in New York. “The individual seasonally adjusted changes for these months likely should be discounted when trying to determine the trend for the data.”
BROAD WEAKNESS
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Receipts at motor vehicles and parts dealers plunged 1.7%.
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Sales at building material and garden equipment outlets tumbled 4.1%, likely because of winter storms that blanketed much of the country in mid-month.
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Gasoline station receipts dropped 1.7% as gasoline prices declined. Online sales dropped 0.8% after surging 1.4% in December. Sales at electronics and appliance outlets fell 0.4%, while those at clothing stores declined 0.2%.
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But sales at food services and drinking places, the only services component in the report, increased 0.7%. Economists view dining out as a key indicator of household finances. Furniture stores receipts surged 1.5%.
Though momentum is likely to slow this year, consumer spending remains healthy, thanks to a resilient labor market and rising household purchasing power as inflation subsides.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 212,000 for the week ended Feb. 10.
Claims are bouncing around low levels despite a recent rush of high-profile layoffs, mostly in the technology and media sectors. Economists had forecast 220,000 claims for the latest week. Companies are mostly reluctant to layoff workers after struggling to fill jobs during and after the COVID-19 pandemic.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 30,000 to 1.895 million during the week ending Feb. 3, the claims report showed.
Retail sales excluding automobiles, gasoline, building materials and food services decreased 0.4% in January. The so-called core retail sales measure corresponds most closely with the consumer spending component of GDP.
Core sales for December were revised down to show them rising 0.6% instead of the previously reported 0.8%. Economists are forecasting strong services spending growth in January, which should keep overall consumer spending afloat.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a brisk clip in the fourth quarter, contributing to the economy’s 3.3% annualized growth pace. The economy expanded at a 4.9% rate in the July-September quarter.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama
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Despite the decline in sales, what factors continue to support consumer spending in the U.S
An two-thirds of U.S. economic activity, remains a crucial driver of economic growth. Therefore, any fluctuations in retail sales data are closely watched by economists and policymakers alike.
The latest report from the Commerce Department on Thursday revealed that U.S. retail sales fell by the most in nearly a year in January. However, economists caution against reading too much into this decline, as there are some factors that have distorted the data.
One major factor contributing to the larger-than-expected drop in retail sales is the persistent winter storms that have affected many parts of the country. With harsh weather conditions, consumers are less likely to venture out and engage in shopping activities. This is particularly evident in the sharp fall in receipts at service stations due to lower gasoline prices.
Despite the decline in sales, consumer spending is still being supported by a fairly healthy labor market. Wage growth remains elevated, contributing to sustained consumer purchasing power. Christopher Rupkey, the chief economist at FWDBONDS in New York, acknowledges the weak start to the year for consumers but attributes it largely to the adverse effects of winter weather.
The Commerce Department’s Census Bureau reported a 0.8% drop in retail sales last month, marking the largest decline since February 2023. Additionally, December’s sales figures were revised lower, showing sales rising only 0.4% instead of the previously reported 0.6%. It is important to note that retail sales are mostly goods and are not adjusted for inflation. The generous seasonal factors during December also contributed to the apparent rise in sales, but those factors were less supportive in January, leading to the significant drop in adjusted sales.
Economists had already cautioned against over-analyzing any sharp declines in retail sales, given the unusual seasonal factors associated with December 2023 and January 2024. Seasonally adjusted changes for these months may not accurately represent the overall trend.
Looking at specific sectors, motor vehicles and parts dealers experienced a 1.7% plunge in receipts. Similarly, building material and garden equipment outlets saw a significant 4.1% decline, which can be attributed to winter storms. Gasoline station receipts dropped 1.7% due to declining gasoline prices, while online sales dropped 0.8% after a surge in December. Sales at electronics and appliance outlets and clothing stores also declined.
However, there were some bright spots in the report. Sales at food services and drinking places, which serve as a key indicator of household finances, increased by 0.7%. Furniture store receipts also saw a notable surge of 1.5%.
Despite the overall weakness in retail sales, economists believe that consumer spending will remain healthy due to a resilient labor market and rising household purchasing power as inflation subsides. A separate report from the Labor Department revealed a decrease in initial claims for state unemployment benefits, indicating a relatively low level of layoffs despite high-profile layoffs in certain sectors.
Furthermore, economists are predicting strong services spending growth in January, which should help sustain overall consumer spending. Retail sales excluding automobiles, gasoline, building materials, and food services decreased by 0.4% in January. This so-called core retail sales measure aligns most closely with the consumer spending component of GDP.
In conclusion, while the decline in U.S. retail sales in January may seem concerning at first glance, it is important to consider the external factors that have contributed to this decline. Winter storms and technical factors have distorted the data, and economists advise against overreacting to this temporary setback. Consumer spending remains supported by a strong labor market and rising household purchasing power, indicating a more positive outlook for the economy moving forward.
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