U.S. Retail Sales (January 2025)

Retail sales decline in January  

• Following a string of strong gains in the prior three months, retail and food services sales declined 0.9% month-on-month (m/m) in January. This was worse than the consensus forecast, which called for a decline of 0.2% m/m. However, December's figures were revised higher to 0.7% m/m (previously 0.4% m/m).  
• Vehicle and parts sales were a substantial a drag on the headline (-2.8% m/m), with sales shifting in reverse following a string of strong gains at the end of last year. Sales at gasoline stations advanced by 0.9%, largely due to higher prices at the pump. Sales at building materials and equipment stores fell 1.3% m/m, posting a fourth consecutive monthly decline. 
• Sales in the "control group", which the excludes volatile components above (i.e., gasoline, autos and building supplies) and is used in the estimate of personal consumption expenditures (PCE), also fell (-0.8% m/m), following a 0.9% gain in December.
• Sales were weak across most brick-and-mortar retailers, with the largest declines seen in furniture and home furnishing stores (-1.7% m/m) and sporting goods and hobby stores (-4.6% m/m). Only general merchandise stores (+0.5%) and miscellaneous retailers (+0.2%) bucked the trend and posted small gains.  
• In contrast, sales in bars and restaurants fared better, rising 0.9% after a soft reading in December.

Key Implications

• It appears that consumers hit the pause button on shopping in January. Auto sales weighed heavily on the headline, following a jump in demand late last year. This was likely driven by an increase in replacement demand following the Hurricanes Helene and Milton (report). However, the breadth of pullback in sales activity suggests that inclement weather and the wildfires in California could have also contributed to the slower pace of spending in January – suggesting we should see some giveback in the months ahead. 
• Broadly speaking, households balance sheets remain healthy, supported by a large pile of household wealth and some nascent signs that delinquencies on credit cards and auto loans are levelling off. However, inflation remains a hot button for consumers, not helped by the ongoing uncertainty on the potential implications of the looming tariffs. While one month doesn't make a trend, the slower start to the year suggests Q1 spending could be closer to 2.5% annualized (down from our prior estimate of 3.0%).

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