Lower Consumer Spending

In January, the U.S. experienced a momentary slowdown following a period of vigorous growth at the end of 2023, yet the economy continues to hum along.

  • According to the Commerce Department's announcement, retail sales witnessed a decline of 0.8% in January from the preceding month of December, a drop that was significantly steeper than the anticipated 0.3% decrease.
  • Additionally, data released by the Federal Reserve on the same day indicated that industrial production marginally decreased by 0.1% in January, contrary to expectations which had forecasted a 0.2% rise.
  • Complications in the seasonal adjustment process of the retail sales data might have contributed to the less favorable figures, and the cold weather conditions in January are believed to have negatively affected both retail sales and industrial production. Nevertheless, these factors alone do not fully account for the observed economic softness.

For example, economists at Goldman Sachs pointed out that the decline in e-commerce cannot be solely attributed to the cold weather, noting that sales by non-store retailers decreased by 0.8%. Similarly, analysts at Bank of America observed that card spending continued to be subdued in the week ending February 10, despite the absence of significant weather disturbances during that period.

Promising Indicators

However, amidst the data released on Thursday, there were also promising indicators that received less attention. The report on retail sales revealed an uptick in spending on food services and drinking establishments by 0.7% from December and a significant 6.3% increase compared to January of the previous year, suggesting economic resilience not typically associated with an economy on the brink of distress.

  • Further positive signs emerged from Federal Reserve surveys of manufacturing activity in New York State and the Philadelphia region for February, both of which exceeded expectations.
  • Moreover, the number of weekly unemployment claims was lower than anticipated, and the report on industrial production provided evidence of the United States' continued advancement towards high-tech manufacturing, exemplified by a 23% year-over-year increase in semiconductor output, as highlighted by Capital Economics.

Expected Slowdown

The cautious approach taken by consumers and manufacturers in January can be viewed as somewhat expected, given the anticipations of the dampening effects of the Federal Reserve's rate hikes from the previous year manifesting after a delay. While there has been some debate regarding the endurance of the savings buffer accumulated by consumers during the pandemic, it was generally not expected to be perpetual.

  • Surprisingly, the economy has demonstrated remarkable resilience in the face of the Federal Reserve's tightening measures. This resilience comes as a notable contrast to the previously widespread expectations of an impending recession.
  • Following the January retail sales figures and the downward revision of December's sales growth, economists at Morgan Stanley now project the gross domestic product growth for the first quarter to settle at an annualised rate of 2%, with the growth for the fourth quarter likely to be adjusted down to 2.1% from an initial estimate of 3.3%.


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