U.S. retail sales tumbled sharply lower in January, snapping a five-month winning streak, data indicated Friday, as extreme weather, California fires and surging inflation trigged a consumer spending hangover following December's solid gains.
Headline sales fell 0.9% last month to a collective tally of $723.9 billion, the Commerce Department, well south of Wall Street's consensus forecast of a 0.1% decline and the upwardly-revised December reading of 0.7%.
The closely tracked control-group number, which excludes autos, building materials, office supplies, gas-station sales and tobacco, and feeds into the government's GDP calculations, fell 0.8% on the month, again firmly below the Wall Street consensus forecast of a 0..3% gain and December's gain of 0.7% advance.
"As with the soft January jobs report, the month’s weak retail sales report tells less about the economy’s trend than a report for a month that isn’t buffeted by big one-off shocks," said Bill Adams, chief economist for Comerica Bank in Dallas.
"Retail sales will likely recover in coming months as Californians pick up the pieces and as winter weather affects the Midwest and East Coast less," he added.
Stocks were little-changed following the data release, with the S&P 500 edging 5 points higher in the opening hour of trading and the Nasdaq rising 20 points. The Dow was last marked 71 points lower.
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Benchmark 10-year Treasury note yields slipped 5 basis points lower to 4.471 % following the data release, while 2-year notes were down 2 basis points to 4.272%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.57% lower at 106.706.
The CME Group's FedWatch suggests the Fed will hold its key rate steady at 4.375% until at least September, and possibly beyond, thanks in part to the faster-than-expected January inflation report and a hot reading of factory gate price increases.
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Earlier this week, the Commerce Department estimated that CPI inflation for the month of January rose at the fastest pace since the summer of 2023, with gas, housing, insurance and hospital services prices driving the advance.
Headline inflation was pegged at an annual rate of 3%, with the so-called core reading, which strips out volatile food and energy costs, rising to 3.3%, the highest since March of last year.
“The consumer sentiment report showed people were getting nervous and today’s weak retail sales number confirmed it," said David Russell, global head of market trading at TradeStation.
"Americans are voting with their pocketbooks, which creates some drag on the economy," he added. "However, the resulting slack is good news for the Fed and tilts the balance a little bit more toward rate cuts. This is a good number for stocks overall.”
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