Consumers Start Year in Doldrums

Retail sales rose a modest 0.3% in January after being revised down for December. What was an underwhelming holiday season spilled into the new year. Gains in furniture and building materials, which were driven by the recent uptick in home sales, helped offset a sharp drop in clothing sales. Unusually mild winter weather was not kind to clothing retailers.

Big-ticket vehicle sales edged up a bit. Truck sales, which include SUV and crossover vehicles, hit an all-time high in January. Auto sales continued to fall. Pickup trucks have become popular with people who never use the vehicle as an actual truck.

The control group, which feeds into the GDP data, flatlined in January after being revised down for December. A drop in prices at the gas pump freed up some spare cash to step out to restaurants. That reversed a trend we saw during the holiday season when consumers opted to entertain more at home. Even online spending abated during the month.

Separately, traditional department stores sales were almost flat compared to December and down 5.5% from a year ago. Look for another round of store closures in the months to come.

The weakness we are seeing largely predates the coronavirus, which curbed tourism and travel of wealthy Chinese tourists. Chinese tourists move the needle for luxury retailers, notably in New York, San Francisco, Los Angeles, Las Vegas and Honolulu.

Bottom Line
Consumers remained cautious at the start of the year. Some of that weakness may be attributed to unusually mild winter weather. That provides little solace for retailers who are already contemplating more store closures. Home buying is expected to provide another boost to housing-related spending in February, but we will need those gains as that is when the effects of the novel coronavirus will start to show up in the largest retail markets.

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