After surprising economists time and again last year, the U.S. consumer started 2024 on a more cautious note, as retail sales figures from January came in below expectations and raised questions on whether the consumer will continue to boost the U.S. economy.  

Overall, retail sales dropped 0.8% in January to $700.3 billion, blowing by the 0.3% decline that economists had projected, breaking a trend of better-than-expected sales figures that helped propel the economy to unforeseen levels in 2023.

The U.S. Census Bureau reported that sales underperformed when automobile purchases were excluded, falling 0.6%, against expectations of a 0.3% gain in the category. The report also showed that December’s retail sales results weren’t as strong as initially reported, revised lower to 0.4% from 0.6%. 

“The biggest monthly decline since March 2023 questions the ability and willingness of the consumer to continue propelling economic growth,” BMO Senior Economist Jay Hawkins wrote.

Building Materials, Motor Vehicles Lead Sales Decline

While retailers acknowledged the dip in sales, the National Retail Federation said consumers were still engaged, pointing to weather events that likely disrupted product demand and consumer patterns.

“January prices for goods came down, which affects sales figures even if the same number of items are sold, and increased prices for services pulled dollars away from retail purchases,” said NRF Chief Economist Jack Kleinhenz. Analysts from Wells Fargo and Morgan Stanley said while they expect retail sales to soften in 2024, the strong job market should help fuel continued consumer resilience throughout the year.

“Even as we expect spending will moderate this year, the January slowdown may overstate the near-term pullback in consumption,” Wells Fargo Economists Tim Quinlan and Shannon Seery Grein wrote.