U.S. Retail Sales Drop 0.9% in January as Weather and Tariffs Weigh on Spending

U.S. Retail Sales Drop Sharply in January as Harsh Weather Dents Consumer Activity

U.S. retail sales fell significantly in January, coming in well below expectations as severe winter storms and extreme cold weather kept consumers away from stores and automobile dealerships. The Commerce Department reported a 0.9% decline in retail sales, a sharp reversal from December’s upwardly revised 0.7% increase. Economists had projected only a 0.1% dip, making the actual figures a notable disappointment.

Weather and Tariffs Contribute to Weakness

The drop in sales was largely attributed to harsh weather conditions, with snowstorms and freezing temperatures limiting shopping activity. In addition, California wildfires may have had a regional impact. However, beyond weather-related factors, part of the decline appears to be a pullback following four consecutive months of strong consumer spending, some of which was driven by early purchases ahead of anticipated tariff hikes.

Tariff Uncertainty Weighs on Consumer Behavior

Trade policy uncertainty also played a role in distorting retail patterns. A 25% tariff on Mexican and Canadian goods, originally expected earlier, was delayed until March, while a 10% tariff on Chinese goods took effect in January. These factors likely influenced consumer spending patterns, as households made advance purchases in late 2023 to avoid potential price increases.

Core Retail Sales Decline, Raising Concerns for Consumer Spending

Excluding autos, gasoline, building materials, and food services—key components of core retail sales—spending fell 0.8% in January, erasing December’s 0.8% gain. This measure closely tracks the consumer spending portion of GDP, making the weakness a potential concern for economic growth in the first quarter. Economists had forecast a 0.3% rise in core sales, further underscoring the unexpected nature of the slowdown.

Outlook: Cautiously Bearish for Retail Spending

Despite this setback, consumer spending remains supported by a strong labor market and elevated household wealth, particularly from high home values. However, with tariffs still in play and weather-related disruptions lingering, the short-term outlook for retail sales appears bearish. Traders should monitor February’s retail data closely to assess whether this downturn is a temporary weather-driven slump or a signal of slowing consumer demand.