Unusually cold weather was partly to blame for weaker-than-expected retail sales in January, but consumer spending fell more than expected across the board, indicating that the economy is not picking up as quite as quickly as economists had predicted.
Sales dropped 0.4 percent, month over month, in January, and they rose 2.6 percent year over year. Economists had expected flat month-over-month retail sales and slightly higher year-over-year growth. Instead, the fall in sales is the first decline in core retail sales since February of last year.
“The report was discouraging, and many are going to point to extreme winter weather conditions as the primary cause for the larger-than-expected decline,” according to a Thursday report from Briefing.com.
The decline in retail sales was partly due to a 2 percent fall in auto sales, Paul Dales, senior U.S. economist for Capital Economics, wrote in a research note Thursday. Gasoline station sales and building material sales increased by 1.1 percent and 1.4 percent month over month, respectively, partly offsetting the drop in overall sales.
Excluding auto, gasoline and building materials sales, household consumption fell by 0.3 percent in January compared to December.
Sectors affected most by the weather, like restaurants, sporting goods and motor vehicles, reported declines in sales (0.6 percent, 1.5 percent and 2.1 percent, respectively).
But weather may not explain why online sales also decreased by 0.6 percent, or why sales of building materials increased, unless nearly everyone bought salt and shovels (not likely).
Steve Blitz, chief economist for ITG Investment Research, said on Thursday that the "weather in November didn’t seem enough to keep people from spending.”
“Stay-at-home shopping should not be a weather-related event,” Blitz said. “If anything, one would think that bad weather boosts shopping by click.”
But instead, non-store retail sales increased by 6.5 percent from January 2013, the weakest January growth since 2012. Since 1993, the average January year-over-year rate has been 8.6 percent, and beginning with 2003, the average is 8.3 percent. The weak general spending in January could mean that December’s spending out of savings was a one-time event for the holidays and not the start of a trend.
“The main issue,” Blitz said, “is that economy is growing but not accelerating.”
Blitz predicts consumption will pick up in the next few months, encouraging those anticipating a year of accelerating growth in the economy.
Dale forecasts that annualized consumption will end the first quarter at 2 percent to 2.5 percent, even after factoring in strong spending on heating in January and an expected rebound in retail sales in February and March. That consumption growth would be slightly less than the fourth quarter’s 3 percent growth.