People shop at a home improvement store in Brooklyn on Jan. 25, 2024.
Spencer Platt | Getty Images News | Getty Images
Consumer spending fell sharply in January, presenting a potential early danger sign for the economy, the Commerce Department reported Thursday.
Advanced retail sales declined 0.8% for the month following a downwardly revised 0.4% gain in December, according to the Census Bureau. A decrease had been expected: Economists surveyed by Dow Jones were looking for a drop of 0.3%, in part to make up for seasonal distortions that probably boosted December’s number.
However, the pullback was considerably more than expected. Even excluding autos, sales dropped 0.6%, well below the estimate for a 0.2% gain.
The sales report is adjusted for seasonal factors but not for inflation, so the report showed spending lagging the pace of price increases. On a year-over-year basis, sales were up just 0.6%.
Headline inflation rose 0.3% in January and 0.4% when excluding food and energy prices, the Labor Department reported Tuesday. On a year-over-year basis, the two readings were 3.1% and 3.9% respectively.
Sales at building materials and garden stores were especially weak, sliding 4.1%. Miscellaneous store sales fell 3% and motor vehicle parts and retailers saw a 1.7% decrease. On the upside, restaurants and bars reported an increase of 0.7%.
Consumer strength has been at the center of a U.S. growth picture that has proven far more durable than most policymakers and economists had expected. Spending accelerated by 2.8% in the fourth quarter of 2023, finishing out a year in which gross domestic product rose 2.5% despite widespread predictions for a recession.
However, worries linger that stubbornly high inflation could take its toll and jeopardize prospects going forward.
A separate economic report Thursday showed continuing labor market strength, another critical bedrock for the economic picture.
Initial claims for unemployment insurance totaled 212,000 for the week ended Feb. 10, a decline of 8,000 from the previous week’s upwardly revised total and below the estimate for 220,000.
There also was some good news on the economic front, as regional manufacturing surveys in the Federal Reserve’s Philadelphia and New York districts both came in better than expected for February.
The Philadelphia survey showed a reading of 5.2, up 16 points and better than the -8 estimate, while the Empire State survey for New York was at -2.4. While the New York survey still indicated contraction, it was a much better reading than January’s -43.7 and the -15 estimate. The surveys measure the share of companies reporting growth, so a positive reading indicates expansion.
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