Retail sales in January plummeted the most in nearly a year — raising concerns that shoppers may finally be buckling under the weight of stubbornly high inflation and record credit card debt.
The Commerce Department’s Census Bureau on Thursday reported that retail sales fell a worse-than-expected 0.8% last month — after December’s numbers were revised down from 0.6% to 0.4%.
Economists had forecast retail sales — mostly goods and not adjusted for inflation — to dip just 0.1%.
The unexpected monthly decline was the worst since last March and dragged year-over-year retail sales down to just 0.6% — the worst since COVID lockdowns took hold in May 2020.
“From this report, we see that consumers are likely becoming more price conscious and perhaps this is the first sign that the spending splurge is nearing the end,” Jeffrey Roach, chief economist for Charlotte-based LPL Financial, told The Post on Thursday.
Some economists had cautioned not to read too much into any sharp drop in retail sales.
“The weather weighed on consumer spending in the month, but consumer spending should bounce back quickly,” said Bill Adams, chief economist for Comerica Bank.
Nevertheless, Americans whose bank accounts swelled from COVID stimulus checks could also be tapped out as they collectively owe $1.13 trillion on their credit cards, with the average balance soaring to $6,360 per consumer — both historic highs.
Paying down those balances may prove difficult. The average annual interest rate on most cards has spiked to nearly 23% as the Federal Reserve continues to keep its rates at a two-decade high in an effort to tamp down inflation.
The troubling retail sales data follows Tuesday’s worse-than-expected CPI print of 3.1%.
The overheated inflation figure remained above the Fed’s 2% target level at a time when public frustration with continued high prices has become a pivotal issue in President Joe Biden’s bid for re-election.
“Real consumption appears to have declined in January and, even allowing for a recovery over February and March, growth will slow sharply in the first quarter,” Andrew Hunter, deputy chief US economist at Capital Economics, wrote in a report following the release of the retail sales data.
“The upshot is that Fed officials may not need to worry much longer about the possibility of continued economic resilience reigniting inflation.”
Unadjusted retail sales typically fall in January. The seasonal factors were less supportive for this January compared to previous years, resulting in the large drop in adjusted sales last month.
Stripping out automobiles, gasoline, building materials and food services, so-called core retail sales decreased 0.4% in January. The core retail sales measure corresponds most closely with the consumer spending component of GDP.
Wall Street investors hoped the disappointing retail sales data would spur the Fed to cut interest rates sooner rather than later.
“Investors were expecting modest growth in core retail sales, but instead saw a month-over-month decline,” Bret Kenwell, an investment analyst at eToro.
“This complicates things for investors looking for clarity around the Fed’s first rate cut.”
The Dow Jones Industrial Average was up more than 200 points, or 0.52%, while the S&P 500 index was 16.5 points higher, .33%, in midday trading.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 212,000 for the week ended Feb. 10.
Claims are bouncing around low levels despite a recent rush of high-profile layoffs, mostly in the technology and media sectors. Economists had forecast 220,000 claims for the latest week.
Still, headwinds for shoppers remain strong. Total household debt climbed by $212 billion in the fourth quarter of 2023 to $17.5 trillion, the New York Federal Reserve said in its latest quarterly Household Debt and Credit Report.
Delinquency rates have been rising from historic lows reached near the end of 2022, and households came into the pandemic with strong balance sheets that were then reinforced by trillions of dollars in government assistance.
The New York Fed said 3.1% of outstanding debt was in some type of delinquency, up one-tenth of a percentage point from the third quarter.
Overall delinquency rates were 1.6 percentage points lower than in the last quarter of 2019 before the pandemic struck.
The government’s monthly retail sales report offers only a partial look at consumer spending; it doesn’t include many services, including health care, travel and hotel lodging.
Major retailers including Walmart and Macy’s are slated to report financial results for the fiscal fourth quarter, which includes the critical holiday period, in the next few weeks.
With Post Wires
This story originally appeared on NYPost
