Retail activity unexpectedly slipped at the start of the year, the Census Bureau reported this morning, as total retail sales growth dropped 0.3% from a month earlier. In addition, December growth from the prior month was revised down sharply from 0.4% to unchanged.
January’s results came despite a sizeable gain in gasoline sales, as rising fuel prices helped to drive growth in sales figures. Sales excluding gasoline fell 0.4% during the month, with year-over-year growth matching a three-year low of 3.2%.
The softness in activity during the month was broad-based, with most major industries experiencing flat or declining sales. Motor vehicles and building materials took the largest hits during the month, as unseasonably poor winter weather likely restrained some activity.
Consumer Prices
In addition to the disappointing retail report, the Census Bureau also reported that consumer prices rose 0.5% during the month, beating expectations of a 0.3% gain. As is often the case with the Consumer Price Index, these results were heavily influenced by the volatile energy component which rose 3% in January. The Core Consumer Price Index (excluding food and energy prices) rose 0.3% during the month and is now 1.8% higher than this point last year.
This pace of core inflation also exceeded expectations, but much of this was driven by a surprise increase in clothing prices during the month. Consumer inflation still remains broadly muted.
Behind the Numbers
On the retail front, this certainly isn’t the best way to begin the year, but there doesn’t seem to be much reason to panic. First, even with the downward revisions to December, the fourth quarter ended up very strong from a sales perspective, so some of the weakness in January could just be a pullback after healthy holiday season growth. Second, weather was unusually harsh throughout the South and East coast at the start of the year. The big declines in building materials and garden supply stores, and the weakness in auto sales, are typical in the face of snowstorms and record cold. So while there is probably less underlying strength in consumer spending than previously thought, some of this month’s decline can be made up later.
Given the recent tumble in equity markets, the usually-uneventful CPI release has been highly anticipated this month. Financial markets have been searching for any signs of a pickup in inflation as a signal that monetary policy might tighten faster than expected, and there were worries that a strong CPI number could cause another drop in the stock market. The headline numbers did come in stronger than expected, but nothing in the details suggests a real acceleration in inflation.
Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.