U.S. Retail Sales Unexpectedly Decline in January, Raising Growth Concerns

Consumers significantly reduced their spending in January 2025, potentially indicating a decline in economic growth in the coming quarters.

Key Findings

* Retail sales dropped by 0.9% from an upwardly revised 0.7% gain in December, exceeding market expectations for a 0.2% decrease.
* Excluding automobiles, sales fell by 0.4%, below forecasts of a 0.3% increase.
* A "control" measure, which excludes nonessential categories, declined by 0.8% after a previously reported 0.8% increase.

Sectoral Breakdown

* Sporting goods, music, and book stores saw a 4.6% monthly decline in sales.
* Online outlets reported a 1.9% decrease.
* Motor vehicles and parts spending dropped by 2.8%.
* Gas stations and food and beverage establishments both reported 0.9% increases.

Implications

As consumer spending constitutes approximately two-thirds of U.S. economic activity, the disappointing sales numbers indicate a possible slowdown in growth in the first quarter. This has led to concerns among economists.

Market Reaction

Stock futures traded slightly lower following the release, while Treasury yields declined. Traders anticipate a potential interest rate cut by the Federal Reserve as early as June.

Inflation

Inflation remains above the Fed's target of 2%. The consumer price index rose by 0.5% in January, resulting in an annual inflation rate of 3%. However, the producer price index, which reflects wholesale prices, showed signs of moderation.

Other Economic Data

* Import prices rose by 0.3% in January, the largest monthly increase since April 2024.
* Export prices increased by 1.3%.