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MARCH 12, 2019

Consumer spending freeze thaws in January

U.S. retail sales only partially rebounded in January after the shockingly large setback in December. Sales nudged up 0.2% at the start of the year, a tad better than expectations, but this followed a revised 1.6% drop in December (even a deeper setback than the initial -1.2%). Core sales i.e., those excluding gas, food and building materials bounced back 1.1% after an extreme 2.3% plunge in December (first estimated at -1.8%, the second worst in more than 25 years of data). A sharp drop in both autos (-2.4%) and service stations (-2.0% on lower gasoline prices) held the headline number down again, leaving overall sales up a modest 2.3% y/y. The government shutdown no doubt added a drag on sales in the month, as it only ended late in January. Interestingly, the deep drop in “non-store retailers” (i.e. on-line shopping) first reported for December was actually revised to an even larger drop – it’s now estimated at a 5.0% fall for the month - versus the initial -3.9% reading, although these sales came back 2.6% in January. That left them up 7.3% y/y, which is still a strong number, despite being below the consistent double-digit gains of recent years.

Early indications for Q1 growth are underwhelming as auto sales actually slipped a bit further last month after a sluggish start to the year (16.5 million units versus 16.7 million in January). And, the deep downward revision to December sets up the possibility of a small downward revision to Q4 GDP as well.

Bottom Line: Sales managed only a tepid reversal in January from December’s deep freeze. While we expect a comeback in the next few months as the weather thaws, it seems the economy’s big engine - the consumer - has also cooled relative to recent trends. Tax refunds should help spending patterns into April & May, although so far data suggests excess refunds - i.e. the amount above those seen in 2018 - will be lower than expected. We will continue to monitor these trends closely, but for now slow and steady growth remains our base forecast for early 2019.

Consumer spending freeze thaws in January
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