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The Retail Sales Numbers Were Worse Than They Look

Overall retail sales matched what economists had predicted, but a different number is the important one to watch.

Overall retail sales matched what economists had predicted, but a different number is the important one to watch.

A key measure of consumer spending was flat in January, showing Americans pulled back at the start of the year.

Overall retail sales rose a modest 0.3% last month from December, a pace that matched what economists polled by Bloomberg had predicted. The important number to look at when it comes to retail sales, though, is the so-called retail sales control group.

That gauge backs out receipts from auto dealers, building-materials retailers, gas stations, office supply stores, mobile homes, and tobacco stores. It is considered more representative of underlying consumer demand and feeds into the quarterly gross domestic product calculation.

Control group sales were unchanged in January from a month earlier, and the December increase of 0.5% was revised to a 0.2% rate. Weakness was especially apparent in clothing and accessory stores, where sales dropped a steep 3.1% from the previous month. Consumers also bought fewer electronics, for a 0.5% decline in sales, and spent less at health and personal-care stores. Their sales fell 0.4%.

Stock futures pulled back after the report and major indexes were trading mixed on Friday morning. The Dow Jones Industrial Average dipped 37 points, or 0.1%.

“What was an underwhelming holiday season spilled into the new year,” said Diane Swonk, chief economist at Grant Thornton. The result came despite mild weather, which can bring more people to shops and restaurants.

Even online shopping cooled. “The weakness we are seeing largely predates the coronavirus, which curbed tourism and travel of wealthy Chinese tourists,” Swonk added.

Consumer spending drives most of U.S. economic growth, and strength there has been offsetting weak spending by businesses. A strong consumer-confidence reading Friday from the University of Michigan for February (It came it at a better-than-expected 100.9, up from 99.8 in January,) suggests consumers aren’t too fazed by the coronavirus.

Of course, what people say via confidence surveys and what they do in terms of spending don’t always jibe.

“With the US economy resting on the shoulders of the consumer, sales have been pretty mediocre over the past 5 months notwithstanding the low unemployment rate and improved wage growth,” says Peter Boockvar of Bleakley Advisory Group. “Expect to see Q1 GDP estimates cut even further which are already softening because of the virus,” he said.

The latest GDPNow estimate from the Atlanta Fed for the first quarter is for growth of 2.4%, which the bank revised down from 2.7% after Friday’s retail sales report. GDP rose 2.1% in the fourth quarter as a smaller trade deficit—a result of the tariff war with China—masked weaker spending by consumers and businesses.

Write to Lisa Beilfuss at lisa.beilfuss@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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