Retail sales stumbled badly into 2025

February 14, 2025

Retail and food services sales fell 0.9% in January, significantly weaker than expected, after four consecutive monthly gains. A drop in light vehicle sales in January accounted for roughly two-thirds of the decline. However, even excluding vehicle sales, retail sales and food services sales declines were broadly based, with retail sales excluding autos declining 0.4%. Sales in January may have been restrained by an outbreak of unseasonably cold and snowy weather, primarily in the South, with some areas in Texas, Louisiana, Alabama and Florida seeing record-low temperatures and snowfall. More fundamentally, emerging evidence of some increasing financial strain among lower-income consumers could also be restraining spending.

A previously reported plunge in light vehicle sales accounted for much of the overall decline, with sales at motor vehicle and parts dealers declining 0.7% on the month; vehicle sales fell to 15.8 million units (seasonally adjusted annual rate) in January, following a December surge to 17.1 million units, their highest level since May 2021.

Retail and food services sales, excluding vehicles and auto parts, fell 0.4%, supported by a healthy 0.9% rise in food services sales, a bright spot in an otherwise weak report. The CPI price index for food away from home rose a tame 0.2% in January, so that rise was not driven by a jump in prices. On the other hand, sales at gasoline stations jumped 0.9% in January, and that was boosted by a 1.8% rise in the price of gasoline, such that volumes declined roughly 0.9% in January. General merchandise stores, comprising only about 12% of the total, rose 0.5%, with a strong 0.8% gain in department store sales carrying that category.

As noted above, weakness was spread across several categories. Spending at sporting goods stores fell 4.7% during the month, following a solid gain in December. Spending on clothing and accessories dropped 1.2% after a strong December. Sales at furniture and home furnishing stores dropped 1.7%, while sales at electronics and appliance stores fell 0.7%, both in line with generally weak home sales of late. Spending in these categories may have been boosted by replacement demand over the prior few months following the destruction wrought by back-to-back hurricanes in the late summer last year. Sales at building materials and garden equipment and supply dealers fell 1.3%, the fourth consecutive monthly decline. Even non-store retailers, which have been on a strongly rising trend, stumbled in January, declining 1.9%, the largest decline since July 2021.

The consumer sentiment survey revealed that consumers were buying ahead of price hikes (tariffs) in December and early January; that is not apparent in today’s data.

The core control group of retail sales, which feeds directly into the GDP calculations, fell 0.8% during the month, following an upwardly revised 0.9% gain in December. When combined with revisions, the data suggest that consumer spending should rise at close to a 2.5% annualized pace for the first quarter, after adjusting for inflation. That follows a quite robust 4.2% rise in the fourth quarter.

Real GDP is expected to rise at roughly a 2.2% pace in the first quarter, near the 2.3% in the fourth quarter.