The cold weather that swept the United States in January caused consumers to stay indoors, which resulted to a significant decrease in spending at retail establishments in the United States. This came after a successful Christmas shopping season.
On Thursday, the Commerce Department announced that retail sales, which include spending on all products and food services, saw a decline of 0.8% in January. This marked the end of a two-month series of growth in retail sales. According to FactSet, this was even lower than the downwardly corrected growth of 0.4% that occurred in December, and it was far lower than the prediction of a fall of 0.1% that economists had made. Changes in the seasons are taken into account, however inflation is not taken into account.
Last month, spending decreased across a variety of categories, including at petrol stations and home improvement businesses, most likely as a result of the cold weather, with the former seeing a 1.7% decrease and the latter experiencing a 4.1% decrease. Earnings from online sales fell by 0.8%.
In the meanwhile, sales at pubs and restaurants increased by 0.7% in the month of January.
As a result of rising interest rates, persistently high inflation, and a more difficult time gaining access to credit, many people in the United States are continuing to deplete their savings over the course of the epidemic. However, one significant positive aspect is that the employment market continues to be in a satisfactory state. Growth in the stock market has been fueled by robust profit reports from large technological firms, which has contributed to an increase in the wealth of some wealthy Americans.
Although inflation slowed down last month, certain price increases continue to be a source of discomfort.
It is just the second fall over the previous ten months, despite the fact that the data that was released on Thursday was worse than projected. In addition, the Arctic cold that was experienced in January began to reverse course later in the month in some regions of the nation, and it is probable that retail spending will become more robust in the month of February.
“This weakness typically reverses quickly as weather returns to normal and people catch up on spending plans delayed by the cold and snow,” said Bill Adams, chief economist at Comerica Bank, in a report that was released on Thursday.
It is quite probable that the Federal Reserve will examine the disappointing retail sales data for a single month, particularly considering the fact that there is a clear explanation resulting from a clearly transitory problem, as he said.
Despite the fact that there are no obvious indications of a recession in the United States at the moment, the majority of analysts anticipate that the economy will move at a slower pace in the months to come.
Companies claim that customers in the United States are experiencing stress.
Some of the most prominent corporations in the S&P 500 have said in recent earnings calls that it is becoming more and more obvious that the people of the United States are experiencing stress, which may ultimately result in customers in the United States cutting down on their spending. Roughly two-thirds of the total production of the economy is accounted for by consumer expenditure.
Tim Wentworth, the chief executive officer of Walgreens Boots Alliance, said on a recent earnings call that “I think the state of our consumer is probably not as buoyant as perhaps some of what you read about consumers more generally.”
According to analysts from the New York Federal Reserve, Americans have also continued to support their spending via the use of standard credit cards and “Buy Now, Pay Later” services. These products are being employed more often by those who have poor credit ratings. There will come a time when borrowers will be required to repay that loan.
In a report that was released on Thursday, Kathy Bostjancic, the chief economist of Nationwide, said that “we have expected consumers to rein in their spending this year after drawing down the pandemic-related savings, driving the savings rate well below its pre-pandemic levels, and increasing their reliance on credit.”
While consumers are rushing to fund their expenditure, one usual dynamic that occurs is that they trade down for better offers. This is in addition to the fact that they are increasingly dipping into credit.
It was said by Wentworth that “they are looking at Costco and Walmart as well as other places to make key purchases in order to stretch their dollars even further.”
This is due to the fact that inflation continues to be far higher than the objective of 2% set by the Federal Reserve, as well as anything that consumers in the United States are used to.
“What has been important is to understand that there is a section of the population that has come under pressure from disposable income,” James Quincey, the chief executive officer of Coca-Cola, said during an earnings call. “The real spending power squeeze from the inflationary effect, and there we’re very much focused on affordability and you could perhaps argue that some of them went out less, there was more at home purchases, some of the certain channels and there we really focused with affordability, both from pack size — individual pack size and with multipack.”
