US DATA: Poor Retail Sales Bode Ill For Q1 Spending Despite Mitigating Factors

Retail sales dropped sharply in January, with the overall reading -0.9% M/M (0.7% prior, -0.2% consensus) representing the biggest sequential drop in 22 months. The core aggregates didn't fare much better: ex-autos/gas at -0.5% (12-month low, 0.5% prior, +0.3% consensus) and the control group coming in at -0.8% (like headline, a 22-month low, vs 0.8% prior, +0.3% consensus).

• Revisions suggested that this wasn't as weak a report as it seemed at first glance: December readings for headline, ex-autos/gas, and control were each upwardly revised (by 0.3pp, 0.2pp, and 0.1pp, respectively, though unrounded the magnitude of the revisions were even higher than that suggests).
• And the seasonal adjustments have to be considered. Non-seasonally adjusted retail sales fell 16.5% M/M, which is typical given the drop in purchases vs the holiday season (in January 2024, M/M NSA retail sales fell 16.8%).
• On a Y/Y NSA basis, retail sales accelerated for a 2nd consecutive month to 4.8%, an 11-month high, with the control group up 4.5%, a 6-month best. While we would caution against such comparisons, as they are affected by other factors such as trading days in the month, a look at Y/Y on the adjusted data shows 4.2% growth (slowing from 4.4% in Dec) with 3.7% for control (4.4% prior).
• To be sure, the report is not strong, and almost certainly means that Q1 2025 goods PCE growth - which is based on sequential changes - will have to be reconsidered to the downside absent a big reversal to the upside in February and/or revisions.
• The GDP input control group 3M/3M annualized rate of growth fell to a nine-month low 3.2% from 4.6% in December, with a rough proxy for the volume of quarterly growth plummeting to 0.4% from 3.6% prior, marking a 29-month low.