Retail sales tumble in January, clouding impact of hot inflation reading

Inflation might be hot but consumer spending is not.

Feb 15, 2024 - 20:30

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Retail sales tumble in January, clouding impact of hot inflation reading

Updated at 9:32 AM EST

U.S. retail sales fell sharply last month, official data indicated Thursday, suggesting that broader economic weakness to start the year could offset the faster-than-expected January inflation report.

Headline retail sales fell 0.8% from December to a collective total of $700.3 billion, the Commerce Department said, more than four times lower than economists' forecasts of a 0.2% decline and the weakest since March of last year.

The December total was also revised lower, to 0.4% from an original reading of 0.6%.

The closely tracked control-group number fell 0.4% on the month, following a downwardly revised 0.4% gain in December. This figure, which excludes autos, building materials, office suppliers, gas station sales and tobacco, feeds into the government's GDP calculations.

Gasoline-station sales were down 7.5%, the release indicated, after Energy Department data showed the national average fell 6 cents from December to $3.197 per gallon.

January retail sales -0.8% month/month vs. -0.2 est. & +0.4% in prior month … sales ex-autos -0.6% vs. +0.2% est. & +0.4% in prior month … control group -0.4% vs. +0.8% prior pic.twitter.com/RoCrsFC6Of— Liz Ann Sonders (@LizAnnSonders) February 15, 2024

January inflation remained ahead of Fed target

Data published earlier this week showed that headline inflation was lower in January but was still rising at an annual rate of 2.9%. So-called core inflation, which strips out volatile components like food and energy, held at 3.9%.

The Fed has said it tracks core inflation pressures as part of its price-stability mandate, and the year-on-year gains remain nearly double its preferred target of 2%.

"After Tuesday’s hot CPI report and stock market sell-off, traders were probably a bit more jittery than usual about seeing more stronger-than-expected economic data that could potentially delay the Fed’s pivot to rate cuts," said Chris Larkin, managing director for trading and investing at E*Trade from Morgan Stanley.

"Today’s weak retail sales and middle-of-the-road jobless claims total may help soothe the market’s nerves in the near term," he added. "But there may still be an element of “altitude sickness” at work, since the higher the market rallies, the more vulnerable it may be to setbacks when individual economic numbers don’t fit the rate-cutting narrative."

U.S. stocks held earlier gains following the data release, with the S&P 500 marked 6 points higher at the start of trading and the Dow Jones Industrial Average gaining 40 points.

Benchmark 10-year Treasury note yields edged 4 basis points lower to 4.194% while two-year notes were pegged at 4.538%.

CME Group's FedWatch now suggests the Fed will hold its benchmark rate steady at between 5.25% and 5.5% next month in Washington, with the odds of a May rate cut now pegged at around 38.5%.

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