U.S. retail sales declined for the first time in four months, as consumers spent less than expected due to the end of the holiday season and an unseasonably cold January.
Retail sales dropped 0.9% from December, according to a Census Bureau report on Friday. While sales often decline in January, the drop is more than the 0.2% that economists expected. However, the Census Bureau revised the December numbers up to 0.7%, lessening the sting of the January report.
While weather plays a factor, non store retail sales fell as well showing the decline was broadbased. But consumers appear to remain in good shape suggesting that sales could recover in the coming months.
“We ended last year on a fairly strong note, starting this year on a little bit weaker note,” said Sam Bullard, a managing director and senior economist at Wells Fargo.
Motor vehicles and parts are usually excluded from the analysis of retail sales growth. And in January 2025, retail sales excluding motor vehicles and parts shrunk by 0.4% compared to January 2024.
While compared to last January, retail sales fell in almost all areas. Sporting goods, hobby, musical instruments and book stores took a dive down to 4.1% from January 2024. Nonstore retailers like Amazon and Shein also faced a decline compared to last year.
The few areas of strength included food services and drink places, gasoline stations and general merchandise stores. Grocery stores also saw a slight bump in numbers, which consumers stockpiling goods like eggs may have played a role in.
January has historically been a month when consumers try to make up for the holiday season by spending less. With January 2025 also being the coldest January since 1988, more consumers were more than happy to spend time in their warm homes rather than outdoors in the freezing temperatures. Since consumer spending contributes significantly to GDP growth, if this decline continues, it can point to trouble in the economy.
However, economists are remaining optimistic that retail sales will continue to grow.
This is partly due to income growth that supports consumer spending and a labor market that is stable despite being more restrained.
While hiring fell short of economists’ expectations, joblessness is down overall with fewer people filing for unemployment. Additionally, there is an uptick in hourly earnings which indicates that consumers may be more willing to spend.
While consumer spending growth is expected to be supportive of the overall GDP growth this year, today’s report suggests that there may be some risk to the estimated number, according to Bullard.
“Still probably the largest contribution to GDP growth in the current quarter, but maybe not as strong as we initially thought,” said Bullard.
Another factor that will dictate whether consumer spending will slow in the coming months is the potential new tariffs on goods from China, Canada and Mexico, courtesy of the Trump Administration. Last week, the U.S. trade deficit reached a record high as manufacturers began importing goods in preparation for the possible tariffs.
While it remains to be seen whether January will be a one-off month or if consumer spending will rebound, a few economists believe that the decline is more serious.
“That is a terrible number,” said Peter Morici, an economist and professor emeritus at the R.H. School of Business at the University of Maryland. “That’s not a very good reading at all.”