Economist: Consumer Spending Has ‘Literally Frozen’
“Consumer spending has literally frozen,” UniCredit Research chief economist Harm Bandholz told the New York Times last week after government data showed retail sales fell more than expected last month.
Following the release of January’s retail sales figure from the Department of Commerce on February 14, the concern was that the frigid weather experienced by much of the country that month depressed consumer spending. Retail sales totaled $427.8 billion last month, a decline 0.4 percent, and December’s sales figure was downwardly revised from 0.2 percent gain to a 0.1 percent drop, making January the second consecutive month of negative growth. But while many economists have cited the poor weather as the reason for the low spending numbers, Customer Growth Partners Chief Executive Officer Craig Johnson told Forbes that sales were weak — “and not just due to weather.” In fact, January produced “the worst year-over-year growth since 2009,” when the United States economy was in recession.
Johnson thinks that, “The numbers reflect the ongoing rotation in spending from discretionary to non-discretionary goods, from wants to needs.” A January decrease is consumer spending is by no means a surprise; shoppers often decrease expenditures following the holiday season. However, January’s decline was not only significantly larger than the typical drop, but National Retail Federation President and Chief Executive Officer Matthew Shay found it concerning that initial claims for unemployment benefits rose higher than expected last week while consumer spending — excluding more volatile categories like automobile purchases — came in flat with December. It was “not the way to kick off a new year,” he said.
Now, for economists and the retail sector, the question is whether consumer spending will pick up in February, and whether retailers’ big discounting and pent-up demand — both products of the cold weather — will be enough to clear lasting winter inventory. February is an important month for retailers; it is when retailers “get a read on spring trends,” as Retail Tracker Managing Partner Mark Friedman told Bloomberg Television’s “Bottom Line.” Given the weather, it has been hard for retailers to make any projections. Yet, like other retail analysts, he believes that factors beyond cold weather have been hurting retail sales. There are “more fundamental issues” at play, Friedman commented, without delving into specifics. But weak job creation in January and December are likely a contributing factor, although slow hiring has also been attributed to freezing temperatures.