Retail sales shrunk in January, ending several months of consumer spending growth fueled by drawing down savings and going into debt.
The Commerce department reported Wednesday that overall retail sales declined 0.3 percent. Fewer people bought cars and car parts. The increase in gasoline prices, up 3 percent, sapped consumer spending for other goods.
“Fuel prices are starting to push out other types of spending,” said Andrew Zatlin, an economist with South Bay Research in San Mateo, California.
Sales at the end of 2017 got a boost from people spending in anticipation of a tax cut now signed into law by President Donald Trump, as well as from construction spending to rebuild after hurricane season. Those effects did not extend into the new year.
Consumers spent more in the final quarter of 2017 not because they had earned more money, said Lindsey Piegza, chief economist at the investment bank Stifel, Nicolaus & Company. Their extra spending came from drawing down their savings, Piegza said, and from ramping up their credit. Piegza expects people to spend less throughout the first half of the year, and for “a continued loss of momentum in the consumer sector throughout 2018.”
Slower retail sales conflict with other signs the economy is heating up. Wages and inflation rose in January, while unemployment fell.
On the other hand, the Commerce Department found that consumers spent less in December than originally thought. Instead of increasing sales 0.4 percent, it turns shoppers spent no more than in November, which means retail sales have not grown in two months.
Piegza was troubled by the downward revision of December’s retail sales figure. She said January’s figures showed “widespread weakness” across all categories, contradicting the continued optimism of consumers and employers.
It was not bad news for all types of retail businesses. Department stores rebounded from a bad December, when their sales dropped 1.1 percent. In January, sales increased 0.8 percent, contributing to the 1.7 percent growth in apparel sales, the biggest increase in three decades.
Nonstore sales, which includes e-commerce, were flat. Grocery stores sold just 0.1 percent less than in December.
Some economists aren’t worried by the dip in sales. Scott J. Brown, chief economist for Raymond James, the financial services company, said he would wait to see the data for February and March.
“These are January numbers,” Brown said. “You take them with a big grain of salt.” The weather was cold, he said, and consumers tend to spend less in January while they pay off their credit card bill from the holidays.
“You’re always going to get a little bit of payback from the holiday season.”
Despite correctly forecasting sales would shrink, Jocelyn Paquet, an economist with the Bank of Canada, said his bank’s outlook for consumer spending is positive. January was “a bad month in an otherwise pretty positive outlook,” he said.