U.S. consumer spending rose modestly in January, lifted by an increase in purchases of autos, while underlying sales remain worrisome.
Overall retail sales increased 0.3% last month, the Commerce Department said Friday. The slight uptick was consistent with economists’ estimates. Core retail sales — a measure that excludes volatile categories like gasoline, cars and building materials — remained flat.
Clothing sales were down 3.1% at the top of the year, the largest decline since March 2009.
This slump follows downward revisions to retail spending in November and December revealing soft holiday sales. Fewer receipts at clothing stores are a sign that recession fears could be top of mind for people who recall the financial impact of the Great Recession a decade ago.
“A lot of the money that would go into retail sales is going into savings,” said Robert Frick, corporate economist at Navy Federal Credit Union. “People are managing their debt better. People are being slightly more prudent in their spending. They’re going to be more cautious this time around.”
The average personal-saving rate, or portion of after-tax income that people don’t spend, has been on the rise for years, from 6.8% in 2016 to 8% in 2019.
Electronics and appliance store sales were down 0.5% in January as the U.S. and China laid the trade war to rest. Trump signed a trade deal mid-month, tampering down the financial tension between the world’s largest economies.
The upcoming presidential election and tax legislation could also make shoppers more hesitant to spend at the top of the year, Frick said.
Retail store sales in January declined the most since 2009.
Adding to retailers’ woes, last month was the fifth warmest January on record, and unusual weather can shake consumer spending. Warm weather often drives people to go out and spend money, however, consumers tend not to shop for cold weather apparel when it’s pleasant outside.
“The warm January had its footprint all over the retail report,” said Mark Hamrick, senior economic analyst at Bankrate.com. “Whether it’s bars and restaurants, home improvement or weak apparel.”
Online and mail-order retail sales fared better, with a 0.3% sales increase.
Despite taking a breather from clothing stores, consumers remained positive about future economic conditions, a separate government survey released Friday found.
“A lot of people scratch their heads and wonder why consumers aren’t spending more if they’re so confident,” Frick said. “They are confident. But they are cautious.”
Wage growth has provided a positive push for consumer spending as it has remained anchored around 3% over the past year. Part of the wage growth has been fueled by states raising minimum wages, some of which started on Jan. 1.
The labor force participation rate also edged up by 0.2 percentage points in January.
“Lots of people working. Lots of people getting paid. ty and large, the trend seems to be continued strength for the consumer,” said Stephen Stanley, chief economist at Amherst Piermont.
The coronavirus hasn’t made a noticeable impact on the economy. However, analysts and economists say that could change in the coming months.
“I don’t think we saw any spending restraints in the wake of the virus,” said Gregory Daco, chief U.S. economist at Oxford Economics. “The timing and media reports of the outbreak was too late” to impact Friday’s release.
The respiratory illness that’s thought to have originated in China could have an impact on people’s confidence if the outbreak continues to spread, Daco added. “It’ll be a fairly small impact, but I won’t be surprised to see restrained spending in households and businesses.”