Modest Rebound in Retail Sales

Retail sales rose 0.2% in January after falling a jaw-dropping 1.6% in December. The data for December was revised down instead of up, which is the opposite of what many had hoped, given the unusual weakness we saw in December. The level of retail sales in January remained 1.3% behind the high hit in November, after seasonal adjustments. The unadjusted data was even weaker.

Big-ticket spending on vehicles, furniture and appliances was particularly weak in January. Vehicle sales peaked in 2017, while the slowdown in home purchases likely took a toll on spending on furniture and appliances. One bright spot was spending at building material and garden stores; at least a portion of those gains were in response to damages created by the polar vortex, which caused pipes to burst and flooding in apartments and homes. Spending at gasoline stations also fell, despite a small rise in prices at the gas pump. Again, the polar vortex played a role in those losses, as everything from businesses to manufacturing plants were shuttered during the worst of the chill.

Core retail sales, which feed directly into the consumer spending calculation of overall GDP, rose a solid 1.1% but still failed to regain ground lost in December. The largest gains were in sporting goods and hobby shops. Nonstore retailers, including spending online, posted a comeback after a steep drop in December. Spending at department stores increased slightly. Spending at big-box discounters, which were one of the only categories to rise in December, remained solid in January.

Spending at grocery stores, restaurants and bars picked up, despite the lousy weather and government shutdown. A worse-than-usual flu and cold season added to spending at health and personal care stores.

Persistently bad winter weather, most notably in parts of the South, and delays in tax refunds due to the government shutdown could limit a rebound in spending for February. Vehicle sales further plummeted during the month. Stronger gains are likely for March.

Bottom Line
Consumer spending came back in January but on the heels of worse than initially reported declines in December. Overall, consumer spending looks like it will slow along with the rest of GDP growth in the first quarter. Our forecast for 1.3% real GDP growth in the first quarter holds. That is half the pace of growth we saw in the fourth quarter of 2018.

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