American consumers pulled back their spending to start 2026, extending the malaise in retail sales that began late last year.
Retail sales fell 0.2% in January, following a flat reading in December, according to the Commerce Department’s report issued on Friday. January's figure came in below the forecasts of economists, who were expecting another flat reading, The report was delayed because of the 43-day government shutdown.
Recommended Videos
The January retail figure was weighed down by a sales decline at motor vehicle and auto parts dealerships. Gas stations also saw a drop in business, reflecting lower gas prices in January, though the intensifying war in the Middle East is driving up prices in recent days. The national average price for a gallon of unleaded gasoline was $3.32 Friday; a week ago, it was $2.98, AAA said
Excluding business at gas stations and auto dealers, retail sales rose 0.3% in January, according to the Commerce Department.
Economists also believe that severe winter weather throughout most of the country also hurt sales as shoppers were unable to go to physical stores. In fact, online retailers enjoyed a 1.9% sales increase in January.
Health and personal health stores were among the worst performers, falling 3% from December. And sales at clothing stores fell 1.7% from December. Consumer electronics and appliance retailers also struggled with sales declines.
Among the categories that saw gains were home furnishings and building materials, which includes landscape and gardening supplies.
The snapshot offers only a partial look at consumer spending and doesn’t include many services, including travel and hotel lodges. But the lone services category – restaurants – registered a dip of 0.2%.
The so-called control group — which excludes sales of autos, gas, building materials, and restaurant meals and which is used to calculate economic growth — rose 0.3%, according to economists' calculations.
Tim Quinlan, an economist at Wells Fargo, noted in a report that spending in January was sturdier than the headlines suggests. He noted February looks a bit weaker, hurt by a continuation of severe winter weather. He expects that higher tax refunds will help prop up spending in March, but he's worried about the rise in gas prices.
“One big caveat will be how gas prices evolve in the wake of the conflict in Iran with households sensitive to the price at the pump, ” he wrote Friday. “Consumers are fairly sensitive to gas prices, and the average price of a gallon of gasoline is already up by 25 cents in the first week of March compared to the average registered in February on the national level. ”
Quinlan noted that higher prices will boost these nominal retail figures, but would translate to “lower real, or inflation-adjusted consumption.”
The government retail sales report comes as major retailers in recent weeks have reported their fiscal fourth-quarter reports, and so far the results have been a mixed bag.
Walmart Inc. delivered another impressive quarter as lower prices and speedy deliveries attracted Americans ranging from cash-strapped to wealthier households. But rival Target reported earlier this week another quarterly decline in profits and sales during the critical holiday period as the discounter struggles with its own merchandising missteps and confronts a consumer who is focusing more on essentials.
Meanwhile, Home Depot’s fourth-quarter performance was tempered by ongoing caution from American consumers in a weak housing market, but the home improvement retailer’s results topped Wall Street expectations.
Retailers are confronting a shifting tariff landscape, making it hard for retailers to make decisions on hiring and merchandise orders.
The Supreme Court struck down the biggest and boldest of Trump’s tariffs – though President Donald Trump is replacing them with new ones. The job market remains under strain as uncertainty around tariffs and the economy have made employers cautious about hiring.
American employers unexpectedly cut 92,000 jobs last month, according to the Labor Department’s report on Friday. The unemployment rate moved up to 4.4%. Hiring deteriorated from January, when companies, nonprofits and government agencies added a healthy 126,000 jobs. Economists had anticipated 60,000 new jobs in February.