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Sales at clothing stores hit the lowest point in 11 years in January, while consumer spending overall ticked upward. Retail sales climbed 0.3% last month as expected, according to the Commerce Department report released on Friday.

Key Takeaways

• Retail sales rose 0.3%, decelerating further from the prior month’s growth.
• Core retail sales in December were revised downward from 0.5% to 0.2%.
• Sales at clothing stores saw a significant decrease.

Consumer spending grew at a slower pace in January, casting doubts on the moderate economic growth currently forecast. Sales rose 0.3% as expected vs. 0.2% in December, revised downward from 0.3%. Auto sales rose 0.2% after sinking 1.7% the month before, and sales at service stations dropped 0.5%.

Sales at electronics and appliance stores also fell 0.5%. Building material stores reported 2.1% growth in sales, the highest rise since August 2019, and following a 1.3% increase last month. This was likely due to unseasonably mild weather, which also boosted January job growth in construction, leisure and hospitality.

Clothing store sales saw a major drop of 2.1%, the biggest decrease since March 2009. Online sales and mail-order sales only rose 0.3%, suggesting decreased spending on clothing overall in January. The sale of clothing outside brick-and-mortar establishments dipped 0.1% in December. Receipts at furniture stores rose 0.6%, and bars and restaurants saw a healthy 1.2% increase, while sales at hobby, musical instrument, and book stores rose 0.1%.

#RetailSales Charts https://t.co/WsTwzBNzlD pic.twitter.com/uvB4dIO9tV

— Logan Mohtashami (@LoganMohtashami) February 14, 2020

Core Sales and Economic Growth

Retail sales excluding the volatile components of vehicles, gasoline, building materials, and food services saw no change last month. December core sales were revised down to 0.2% from the initially reported figure of 0.5%. Core sales are closely connected with the consumer spending measurement of GDP. 

 Consumer spending slowed down considerably in Q4 2019, and is likely slowing further throughout Q1 2020. Overall, GDP came in at 2.3% last year vs. 2.9% the year before, hindered by the trade war with China and a general economic slowdown seen worldwide.

However, Fed Chairman Jerome Powell stated last week that the “economy is in a very good place, performing well.” The central bank has indicated that it will not adjust interest rates this year following several rate cuts in 2019. The market expected another cut in late 2020, but it’s possible that geopolitical circumstances such as the coronavirus outbreak in China as affected that expectation.

Market Reaction

Gold prices have risen following the in-line retail sales data. Spot gold last traded at $1,580.02/oz, up 0.31% with a high of $1,580.51/oz and a low of $1,575.23/oz. Gold is trading within a tight range following more volatile price movement seen in yesterday’s session, which was impacted by dramatic news concerning the escalation of the coronavirus outbreak.

While the outbreak remains a concern in the global markets, senior CIBC economist Avery Shenfeld stated that “We don't see a reason for consumption to remain weak given the strong growth we're still getting in labor incomes,” referencing the ongoing strength in the labor market this month.