US Retail Sales Witness Sharpest Drop Post-Holidays in Nearly a Year

📝 SUMMARY: In January, US retail sales saw their most substantial drop in nearly a year, with a 0.8% decline from December, as per Commerce Department data. This decrease followed a strong holiday shopping spree, suggesting consumers are pausing their spending. Additionally, US factory production experienced its first reduction in three months, further indicating a slowdown in economic activity. Despite these setbacks, the situation doesn't point towards a significant economic deterioration, supported by a resilient labor market and diminishing inflation rates.

Recent surveys in manufacturing suggest an end to the sector's slump, and homebuilder confidence has reached a six-month peak, hinting at underlying economic strength. Economists from Wells Fargo & Co ($WFC) suggest that while consumer spending is expected to decelerate this year, the robust job market will likely prevent a sharp decline in expenditure.

The retail sales report highlighted declines across nine out of thirteen categories, notably in building materials and auto sales, partly blamed on January's severe weather conditions. The so-called control-group sales, crucial for GDP calculations, also saw a 0.4% drop, marking its first reduction since March.

The economic indicators led to a mixed market reaction, with Treasury yields falling, the S&P 500 index climbing, and the dollar weakening. Bloomberg Economics noted the broad-based nature of the spending pullback, attributing it to heightened borrowing costs and credit card delinquencies, despite easing in some sectors.

Although the retail figures focus on merchandise purchases, a comprehensive view of January's consumer spending on both goods and services, adjusted for inflation, will be provided in a forthcoming report. Initial observations, including a rise in restaurant and bar spending, suggest a nuanced consumer behavior amid ongoing economic challenges.

Executives from major corporations like Coca-Cola ($KO), Hershey ($HSY), and Walgreens ($WBA) have acknowledged the impact of inflation on consumer behavior, emphasizing a shift towards value-seeking amidst stable employment but stressed retail conditions.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-02-15/us-retail-sales-drop-by-most-in-nearly-a-year-after-holidays