United States: Retail Sales Off to a Rocky Start for 2024

After several months of beating expectations, retail sales delivered a rather disappointing performance this time. The consensus forecast had called for a slight 0.2% dip. Instead, retail sales slid 0.8% in January, with sales excluding motor vehicles and gasoline falling 0.5%. These are the biggest declines since March 2023.

Sharp decreases in motor vehicle dealership and gasoline station sales (both at -1.7%) brought total sales down, as expected. But the weakness in other sectors is more surprising. The 4.1% decline in sales at building material stores is the worst since February 2019. Sales at pharmacies, clothing stores and electronics and appliance stores also pulled back, albeit less dramatically. Even nonstore retailers had a hard time in January, posting a 0.8% decrease in sales, their worst performance since November 2022.

For the time being, it seems that real consumer spending will grow more slowly in the first quarter of 2024. Is this our long-awaited sign that the US economy is weakening? It's too soon to say. US consumer confidence has been rising since the fall, and the labour market continues to perform very well. At the same time, the weather was much worse in January than in December, which may have disrupted consumer spending for the month. We’ll need to see if a return to milder weather brings sales back to their previous upward trend—or if we’re witnessing the start of a more persistent downward trend, with consumers weighed down by high interest rates and dwindling savings.

January's drop in industrial production is more in line with expectations. That said, the overall figure is hiding important differences between components. Manufacturing output fell 0.5%. Once we exclude the automotive sector, we see a decline of 0.6%, the worst monthly performance since December 2022. Machinery, primary metal, paper and petroleum products all posted drops in production for January. The mining sector was also down. In fact, industrial production was largely propped up by energy production in January, which rose 6.0%, its strongest gain since March 2023. This increase was mainly due to greater demand for heating, as January was much colder than December, which had been abnormally mild.