Fears of a stock market crash are swirling after advance retails sales data came out notably worse than expected in January. Some are concerned that the economy is finally experiencing the interest rate-fueled slowdown that the country has largely avoided this cycle.
What do you need to know about today’s troubling spending data?
Well, advance retail sales fell 0.8% in January following December’s revised 0.4% gain, per the U.S. Department of Commerce. This is more than double the expected 0.3% decline.
Even excluding the lagging auto sector, which has experienced notably high prices recently, sales fell 0.6%. That’s substantially below forecasts for a 0.2% gain.
Sales at building materials and gardening stores fell 4.1% in January, while miscellaneous store sales slid 3%. Motor vehicle parts and gas station sales both experienced a 1.7% decline as well, even as oil prices fell during the month. Spending on restaurants and bars actually increased 0.7%, however — one of the few bright spots of the report.
Although economists had expected an overall decrease in sales after the red-hot holiday season, the dramatic drop-off experienced last month has raised concerns that consumer spending may experience a brutal slowdown.
Indeed, while spending remained relatively solid despite elevated interest rates for most of last year, some believe today’s report is a troubling sign that households may be hurting more than previously estimated.
Retail Sales Spark Stock Market Crash Rumors
Recession concerns were rampant for much of 2023, a notion that rock-solid consumer spending seemed to refute each and every month. Spending increased 2.8% in the fourth quarter of last year, contributing to a gross domestic product (GDP) increase of 2.5% for 2023.
That said, it’s likely too early to start ringing the recession alarm. The labor market remains red-hot, as shown by initial claims for unemployment insurance, which fell by 8,000 in the first full week of February compared to the week prior.
Similarly, manufacturing data recently released by the Philadelphia and New York branches of the Federal Reserve came out better-than-projected in February.
Investors seem to not be putting too much weight in today’s spending report, either. Both the S&P 500 and Nasdaq Composite closed in the green today, up 0.5% and 0.3% respectively.
“It’s a weak report, but not a fundamental shift in consumer spending,” Navy Federal Credit Union Corporate Economist Robert Frick told CNBC. “December was high due to holiday shopping, and January saw drops in those spending categories, plus frigid weather plus an unfavorable seasonal adjustment. Consumer spending likely won’t be great this year, but with real wage gains and increasing employment it should be plenty to help keep the economy expanding.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
