Retail sales rose 0.4% in January, well below expectations in a sign that the economy isn’t recovering quite as quickly as economists would like to think.
Since automakers had reported an increase in unit sales earlier in the month, the 1.3% drop in motor vehicle sales was the biggest surprise in this Commerce Department report for most economists. This could have been because of fleet sales—large number of unit sales to government agencies or rental car companies that wouldn’t reflect on retail sales numbers, said Guy LeBas, an economist at Janney Montgomery Scott LLC.
Motor vehicles sales might also have fallen due to competition from foreign manufacturers who were able to price their units more competitively in response to a stronger dollar.
However, once motor vehicles sales numbers were excluded, core retail spending rose at 0.7%, the highest increase since March.
“That’s not particularly surprising,” said Millan Mulraine, an economist with TD Securities, “given that we’ve seen a improvement in confidence, and more importantly we’ve seen a labor market recovery that appears to be gaining steam.”
Consumers spent more money at general merchandise stores, a category that includes chains like Walmart and Target and department stores like Macy’s. They also spent more at restaurants and bars, and to a far lesser degree, on electronics.
Electronics sales slumped by almost 4% in December and recovered only slightly in January. This decrease is a reflection of significantly lower prices than lowered sales volumes, said Mulraine.
“Electronics sales are driven by the release dates of iPhones and tablets,” said Mark Vitner, chief economist at Wells Fargo, making it difficult to seasonally adjust and compare electronics sales numbers.
Sales at online retailers fell by 1.1%, after a very soft December. “The drop-off was probably a little bit larger than what we’ve seen in years past,” said Vitner, adding that it was probably just a post-Cyber Monday slump.
December retail sales figures were revised down from 0.1% to reflect virtually no change from November, which was especially disappointing as November and December are considered the most important months for retail sales.
Overall, retail sales were 21% higher than the recession low, and 6% higher from the pre-recession high.
While January’s slower than anticipated gain in retail sales had most economists pleased with what seems to be a steadily recovering economy, LeBas credited this general feeling of optimism to what he calls ‘eco-phoria,’ or ‘euphoria over the economy.’
“Euphoria, by its very nature, is not warranted,” he said, “the reality is a lot more muted.”