American consumers pulled back on spending in the New Year as winter weather diminished store visits and and a stagnant labor market undermined income.
Retail sales unexpectedly fell 0.4 percent in January, according to the Commerce Department, well under the consensus of the Bloomberg survey of economists for a flat month. It was the largest drop in ten months. Sales in December also turned negative, revised down to -0.1 percent from the initial 0.2 percent report.
Many analysts said the stormy winter weather in much of the country may have kept people from malls and auto dealers but others noted that online sales (non-store retailers) had fallen 0.6 percent as well.
Retail sales excluding automobiles were flat, just below the 0.1 percent forecast and the December gain was more than halved, falling to 0.3 percent from the original 0.7 percent. Automobile sales declined 2.1 percent in January after a 1.8 percent drop in December.
The dollar initially lost ground against the euro and the yen after the release. The euro climbed 20 points to 1.3691, the days high so far and the dollar/yen shed 24 points to 101.69 the day's low. At writing the dollar has recovered to 1.3666 and 102.18.
Equities fell at the 9:30 am open in New York with the Dow down as much as 100 points from yesterday's close in early trading. But as in the currencies, the recovery was swift and by 11:23 am the Dow was up 34.33 points, or 0.2 percent, to 15,998.27.
Fed Chairwoman Janet Yellen's conviction that the economy was improving enough to continue the reduction in quantitative easing in her Congressional testimony yesterday' seemed, upon reflection, to carry more weight than two, possibly weather related negative retail sales months.
Payrolls increased 113,000 in January after adding just 75,000 a month earlier, the smallest back-to-back gains in three years. Slowing income growth means consumers may have difficulty sustaining the 3.3 percent increase in consumption of the fourth quarter which was was the fastest in three years.
"Core purchases" that is retail sales without food services, car dealers, hardware stores and gas stations, which are the figures the Commerce Department uses to calculate gross domestic product, fell 0.3 percent in January after an adjusted 0.3 percent gain in December that was smaller than initially reported.
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