Retail sales rose slightly in January but well short of expectations in a sign that consumers are cutting back spending amid economic uncertainty.
Retail sales rose 0.2% from January, according to a Census Bureau report on Monday. This increase, however, was less than the 0.6% that economists expected. The government revised January’s numbers lower to 1.2%.
With retail sales falling in January for the first time in four months, scarcely picking up in February and retaliatory tariffs, there may be a slowdown in spending, which could potentially lead to recession. There is a palpable tension in the air because of the Trump Administration’s back and forth with major U.S. trade partners on tariffs.
With many countries already responding to Trump’s tariffs, we are now in a retaliatory phase, according to Dr. Willi Semmler, an Arnhold Professor of International Cooperation and Development at The New School for Social Research. According to Semmler, a risk of these counter-tariffs is stagflation: the evolution of recession when prices and unemployment are sky-high while demand and the GDP are more stagnant.
“There is a little danger of having stagflation, and then that’s a little bit of a trap, because then the central banks have to raise the interest rate to get the inflation down, but it will make the recession worse,” he continued.
Motor vehicles and parts, which are usually excluded from the analysis of retail sales growth, rose compared to last February, indicating that consumers are spending more at car dealerships. This is potentially because the hold on import tariffs on Canada and Mexico ends on April 2, which will make vehicles more expensive. Sales also went up at grocery stores by 4.3% since February 2024, which is also thanks to prices going up because of tariffs.
Sales in sporting goods, hobby, musical instruments and bookstores are still trending downward, dropping to 3.0% since February last year. This hints that Americans are worried about recreational spending, however, Nicolas Cabot, the owner of LA Wargames, a recently opened hobby store in Los Angeles, has found for the most part, that his shop is still attracting a dedicated base of shoppers.
Cabot imports some of his most popular products, Warhammer 40,000, paints and tools from Britain, Spain and Japan. Of the four paint brands in demand from his customers, only one, Pro Acryl, is produced in America.
Cabot said that there is some “West Coast optimism” amongst the regulars of the shop and himself, that the situation will improve in the end like a “classic Hollywood film” where the “calvary will arrive.”
However, he added should the effects of the tariffs hit his industry, “to keep the lights on, we’re going to have to raise prices a similar amount.”
Non-store retailers like Amazon and Shein also picked up to 6.5% from February last year showing that Americans are spending more money on the internet. Andy Hunter, the founder and CEO of Bookshop.org, an online marketplace for independent bookstores, has found that business is “booming” for him. He credits this flourishing to three main reasons: the launch of a new ebooks platform, improving the website and more socially conscious customers.
Hunter said, however, that publishers are worried about tariffs because a lot of cookbooks and children’s books are printed in China. And should these prices increase, Amazon has “more resources to absorb an impact like that,” such as offering 50% discounts, which smaller bookstores cannot compete with.
Another point of worry for independent bookstores, according to Hunter, is the United States Postal Service and the threat of the Trump Administration dismantling or privatizing it, as it is “much more affordable than FedEx and UPS for shipping books.”
With consumer sentiment steadily falling, along with high inflation, and retaliatory taxes, all signs point that the U.S. is heading into a recession. However, some analysts believe that it could have been much worse.
“The bottom line is, as far as I can see, it actually did better than I would have expected, because I worry about a recession coming,” said Paula Rosenblum, co-founder and managing partner of RSR Research, a company that provides retail sales.