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Could January’s US Retail Sales Data Reflect an Economic Slowdown?

In a delayed report due to the capturing of data during the 35-day government shutdown, U.S. retail sales for January were a mix of good and bad news, according to the Commerce Department’s report released Monday.

On the positive side, there was a slight uptick in sales by 0.2 percent, which was also 2.3 percent above the result for January 2018. The retail sales data for December was revised to down 1.6 percent instead of the initial report of down 1.2 percent. The drop is sizable and represents the biggest decline since September 2009, near the economic low from the recession that many pegged as starting around December 2007.

It also means holiday sales were nothing to cheer about. There was a gain of 2.6 percent for online retailers, the group classified as non-store retailers. Still, the increase for January was lifted primarily by purchases of building materials and some discretionary spending. And when excluding certain items like gasoline, automobiles, building materials and food services, retail sales jumped 1.1 percent–against a revised 2.3 percent drop in December from the initial report of down 1.7 percent on an excluded basis.

On the less positive side, it’s still hard to decipher what it all really means with regard to the economic outlook. The 0.2 percent gain in sales is considered good as most economists were expecting retail sales to be unchanged in January. There’s an expectation, however, that fourth-quarter gross domestic product growth—currently at 2.6 percent—might be revised lower later this month. Plus, there’s a general feeling that the economy is slowing down.

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What’s more, the latest report follows last month’s report, which reflected the steepest decline in nine years.

According to Ryan Sweet, director of real time economics at financial intelligence firm Moody’s Analytics, Moody’s is forecasting 0.6 percent growth for the first quarter, “well below that seen over the past several quarters.” While the 0.6 percent growth is low, Sweet said there’s also a chance the growth rate could drop. A poor first quarter isn’t unusual at this stage of an expansion due to issues with residual seasonality, Sweet said, noting that one big hurdle could be the trajectory for consumer spending.

Government data has real consumer spending falling 0.6 percent in December, likely impacted in part by federal workers getting furloughed. “Also, tax refunds, until recently, were well behind those seen over the past couple of years and may dampen spending through February,” Sweet said. Moody’s is projecting real consumer spending up 1.6 percent at an annualized rate for the first quarter.

Gad Levanon, chief economist for North America at The Conference Board, said Friday after the U.S. Bureau of Labor Statistics Employment Situation Report was issued, that the big surprise was the “meager gain in jobs,” at just 20,000. One reason for the paltry numbers, he offered, was the “bounce back from the huge job gain of 311,000 in January,” though he added, “At this point, our forecast is still for a gradual slowdown in job growth during 2019.”

A slowdown in job growth could also impact what the Federal Reserve does with interest rates. Rate hikes are presently on hold while the Fed takes a closer look at the economic backdrop. The next one is slated for June, with two more expected to follow, but that might not happen if the economy is determined to be slowing down. The theory is that rate hikes help to moderate or cool an economy that’s growing fast so it doesn’t get overheated. That’s when inflation rises, and core inflation is already near the Federal Reserve’s 2 percent target.