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US Retail Sales Collapse After Holidays

US retail sales experienced a notable decline in January, indicating that consumers might be pausing their spending after a strong holiday shopping season. Data from the Commerce Department, released on Thursday, showed that the value of retail purchases decreased by 0.8% from December and the year-over-year rate declined 0.65%, marking the smallest year-over-year increase since the pandemic.


Among the 13 categories tracked, nine reported declines, with building materials stores and auto dealers experiencing the most significant downturns. While severe winter weather may have played a role in these figures, a sustained drop in sales could signal that consumer spending is at risk of weakening. Sales in the so-called control group—a metric used to calculate gross domestic product, excluding food services, auto dealers, building materials stores, and gasoline stations—fell by 0.4% in January. This represents the first decline since March.


Our Take: The data suggests that consumers are gradually losing their purchasing power amid higher interest rates and increasing credit card delinquencies. If corroborated by further reports, this slowdown in the US could eventually prompt the Federal Reserve to become the first among the major central banks to reduce the policy rate.


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