Retail sales fall as shoppers pause after holiday season

NEW YORK — Americans pulled back their spending more than expected in January after the traditional holiday season splurge.

Retail sales fell 0.8 percent in January from the strong pace in December when they rose a revised 0.4 percent, according to the Commerce Department’s report on Thursday. Excluding sales at auto dealerships and gas stations, sales were down 0.5 percent for the month. The decline was bigger than the 0.10 percent drop that economists projected and marked the lowest monthly figure since March of last year.

Economists attributed part of the pullback to snowy weather conditions, but they also said the slowdown shows that shoppers may finally be buckling under higher interest rates and other financial hurdles and that the economic momentum from the end of 2023 could be starting to fade. Excluding sales of autos, gas, building materials, and restaurant meals, the so-called control group of sales — which is used to calculate economic growth —fell 0.4 percent in Januworry ary. Economists expected an increase.

The retail sales report could offer positive news that the Federal Reserve could finally start to cut rates, bringing relief to shoppers and businesses seeking lower rates for borrowing.

“Real consumption appears to have declined in January and, even allowing for a recovery over February and March, growth will slow sharply in the first quarter,” wrote Andrew Hunter, deputy chief U.S. economist at Capital Economics, in a report. “The upshot is that Fed officials may not need to much longer about the possibility of continued economic resilience reigniting inflation.”

Despite higher borrowing costs and elevated prices, household spending continues to be fueled by a strong jobs market and rising wages.

There was another surprising burst of hiring to start off 2024 as employers added 353,000 jobs in January, more evidence that the highest interest rates in two decades, intended to slow the economy, have yet to take hold.

But last month’s slowdown was widespread as shoppers cut back their spending in nine of 13 categories including clothing and accessory stores, health and personal care businesses. Sales at building materials and garden suppliers fell a steep 4.1 percent, reflecting bad weather. Online sales fell 0.8 percent. But a solid gain at restaurants showed that spending at services remains sturdy, analysts said.

Consumer inflation in the United States cooled last month yet remained high, and the U.S. reported this week that consumer price index rose 0.3 percent from December to January. Compared with a year ago, prices are up 3.1 percent.

That’s far below the 9.1 percent inflation peak in mid-2022, but solidly above the Federal Reserve’s 2 percent target level at a time when public frustration with inflation has become a pivotal issue in President Joe Biden’s bid for re-election.

Major retailers including Walmart and Macy’s are slated to report financial results for the fiscal fourth quarter, which includes the critical holiday period, starting next week.

But weaker sales at some of the big food and beverage companies could forebode slower sales at stores.