In January, consumer spending saw a significant decline, signaling a potential slowdown in economic growth, as reported by the Commerce Department on Friday.

Sales in the retail sector fell by 0.9% for January, following an upward revision of a 0.7% increase in December. This drop is notably worse than the Dow Jones forecast of a 0.2% decrease. The reported sales figures are seasonally adjusted but do not account for inflation, which saw a rise of 0.5% during the same month.

When excluding automotive sales, prices decreased by 0.4%, also missing the expected 0.3% rise. Another key economic indicator, known as the “control” measure, which excludes certain non-essential categories and contributes directly to gross domestic product calculations, declined by 0.8% after a previously revised increase of 0.8% in December.

Given that consumer expenditure comprises roughly two-thirds of the overall economic activity in the United States, these sales figures suggest a possible decline in growth in the first quarter of the year.

Sales at sporting goods, music, and book retailers plummeted by 4.6% monthly. Online retailers also experienced a 1.9% drop, while spending on motor vehicles and parts decreased by 2.8%. Conversely, gas stations and food and beverage establishments saw a 0.9% increase in sales.

Stock market futures showed slight declines following this report, and Treasury yields also fell. Market participants increased their expectations that the Federal Reserve may lower interest rates as early as June.

Robert Frick, a corporate economist with Navy Federal Credit Union, noted, “While the decline was significant, several factors mitigate the urgency. Bad weather played a role, as did the steep drop in auto sales after a temporary surge in December driven by substantial dealer incentives. Given that December’s figures have been positively revised, the overall trends in consumer spending remain robust,” he stated.

Inflation remains above the Federal Reserve’s target of 2%. The consumer price index increased by 0.5% in January, reflecting a 3% rise in annual inflation. However, the producer price index, which tracks wholesale prices, indicated a slight cooling in essential input costs.

On another economic note, the Bureau of Labor Statistics revealed that import prices grew by 0.3% in January, aligning with expectations for the largest monthly increase since April 2024. Year-on-year, import prices rose 1.9%.

Fuel prices witnessed a monthly increase of 3.2%, marking the steepest climb since April 2024, while prices for food, feed, and beverages went up by 0.2% after a substantial 3% rise in December.

Exports also experienced a boost, with prices climbing by 1.3%.