Retail sales slump despite extra cash from cheap gas
Consumers cautious in spending their windfall from drop in gas prices.
WASHINGTON — U.S. retail sales fell sharply last month as gas prices plummeted and auto sales slowed.
But outside of those volatile categories, Americans actually stepped up their spending a bit.
Retail sales dropped 0.8 percent in January, the Commerce Department said Thursday, following a 0.9 percent decline in December. The dollar value of gas station sales plunged 9.3 percent, the largest drop in six years. Auto dealer sales also fell for the second straight month after big gains in the fall.
Outside those categories, sales ticked up 0.2 percent after a flat reading in December.
The modest gain suggests Americans are still cautious about spending their windfall from lower gas prices, which economists expect will save the typical family $750 this year. Cheaper gas and strong hiring have sent consumer confidence to seven-year highs, a sign spending should pick up soon.
Economists were disappointed by the weak showing, but most expect that consumers will eventually spend much of the extra cash left over from lower prices at the pump.
“With lower gasoline prices leaving households with more to spend … the labor market on fire and consumer confidence back at its pre-recession level, we had hoped to see a much stronger performance,” Paul Ashworth, an economist at Capital Economics, said in a note to clients.
Ashworth now expects growth in the first three months of this year will be just 2.5 percent to 3 percent, below his earlier estimate of 3 percent or above.
Still, “the conditions are in place for a period of very strong consumption growth,” he said. “We still expect to see that strength come through in the retail sales data soon.”
The National Retail Federation, the nation’s largest retail industry group, expects retail sales to be up 4.1 percent this year.
That would be an uptick from the 3.5 percent increase last year and mark the biggest percentage gain since 2011 when retail sales rose 5.1 percent.
The figures exclude business from autos, gas stations and restaurants and include online sales.
Jack Kleinhenz, the NRF’s chief economist, said that heavy discounting will continue this year given the competitive environment and that, he believes, has made sales look less strong in January.
Adjusting for price changes, “demand has been stronger,” he said.