Retail Sales: January 2024

Retail sales hit post-holiday lull  

The January retail sales report showed a larger-than-expected pullback in spending at the start of the year as consumers took a breather after the holiday shopping season. Retail sales figures tend to be volatile at the turn of the year. Looking through the noise, the consumer picture still looks fundamentally solid though we expect spending momentum to cool moderately this year as cost fatigue and softer labor market conditions constrain households’ spending power.


Retail sales fell more than expected last month, down 0.8%, while the December gain was revised lower to 0.4% from 0.6% previously. One-off factors including shifting seasonal adjustment dynamics and the unusually harsh winter weather likely help explain the disappointing performance. When adjusting for inflation, the volume of sales fell 1.1% given the 0.3% increase in consumer prices reported for January. 


The weakness was broad-based across retailers. As anticipated, purchases of motor vehicles were a drag on top-line retail sales. They fell by the most in a year, down 1.7%, as the cold winter weather in January likely kept consumers away from auto dealerships. Consumer spent less at gasoline stations (reflecting lower gas prices) and building materials stores, and cut back on personal care products, clothing and sporting goods in January. They also spent less online as nonstore sales fell 0.8% following a strong 1.4% gain in December. However, strong spending at restaurants and bars provided some offset and suggests that services spending likely held up well during the month. 


Control retail sales – a key gauge of broader consumer spending trends that strips out the volatile components – declined 0.4%, the first decline since March 2023 and a notable reversal from the 0.6% increase in the prior month. The latest data, along with the downward revisions to the December figures, point to softer spending momentum at the start of the year though the robust carry-over from Q4 2024 along with continued moderate real income gains should put a robust floor under consumer spending growth in the first quarter.


We continue to expect a solid consumer spending performance in 2024, but momentum will be a little more subdued than the robust 2.2% advance in 2023. Indeed, softer employment conditions will likely translate into more modest income momentum, while cost fatigue weigh on consumer wallets in the early part of the year. We project that consumer spending will grow around 2% in 2024. We expect real GDP growth will drift below trend growth in H1 2024, with real GDP likely to grow 2.2% on average in 2024 following growth of 2.5% in 2023.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.