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Retail Sales in U.S. Unexpectedly Fell 0.4% in January

Retail Sales
Attendees view Volkl skies during the Outdoor Retailers Winter Market Show in Salt Lake City, Utah, U.S., on Thursday, Jan. 23, 2014. . Photographer: George Frey/Bloomberg

Sales at U.S. retailers declined in January by the most since June 2012 amid bad weather and uneven progress in the labor market, signaling the economy was off to a slow start in 2014.

The 0.4 percent decrease followed a revised 0.1 percent drop in December that was previously reported as an increase, according to Commerce Department figures released today in Washington. The median forecast in a Bloomberg survey of economists called for no change. Jobless claims unexpectedly climbed last week, other data showed.

Slower employment and wage growth the last two months, along with colder-than-normal temperatures, caused American shoppers to pull back after the strongest consumer spending pace in three years in the final quarter of 2013. Economists at Goldman Sachs Group Inc., Credit Suisse and Morgan Stanley were among those reducing tracking estimates for first-quarter growth.

“It’s not looking good for consumer spending,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, and the top sales forecaster over the last two years, according to data compiled by Bloomberg. “Even if you have some modest improvement in the pace of employment growth, that’s not enough to generate a huge improvement in income.”

More Americans than forecast filed applications for unemployment benefits last week, Labor Department figures showed today. Jobless claims increased by 8,000 to 339,000 in the week ended Feb. 8. The median projection in a Bloomberg survey of economists called for 330,000 claims.

Extended Benefits

The expiration of emergency jobless benefits probably also played a role in holding back sales. Federal benefits for the long-term unemployed expired on Dec. 28, shutting off aid to more than a million people. Legislation to extend the program for three months, at a cost of $6.4 billion, is stalled in the Senate. More than 3.6 million people have been without work for 27 weeks or longer, according to the Labor Department.

After the drop in retail sales, Goldman Sachs cut its tracking estimate for first-quarter growth to 1.9 percent from 2.3 percent, Credit Suisse lowered to 1.6 percent from 2.6 percent, and Morgan Stanley reduced its projection to 0.9 percent from 1.9 percent.

Stocks rose as the decline in retail sales was overshadowed by better-than-forecast earnings and a $45.2 billion takeover of Time Warner Cable Inc. The Standard & Poor’s 500 Index increased 0.6 percent to 1,829.83 at the close in New York.

A rebound in stock prices last week helped brighten consumer spirits, another report showed. The Bloomberg Consumer Comfort Index increased to minus 30.7 in the week ended Feb. 9 from minus 33.1 the prior period. A measure of the state of the economy jumped to the highest level since September.

Estimates in the Bloomberg survey for retail sales ranged from a decline of 0.5 percent to a 0.4 percent gain after an initially reported 0.2 percent increase in December.

Chilly January

January was the coldest in three years, with snowfall almost four times above normal, according to weather-data provider Planalytics Inc. That followed the coldest December since 2009 with snowfall 21 percent above normal.

The drop in sales was broad-based, with nine of 13 major categories showing declines last month, led by auto dealers, sporting goods stores and apparel outlets, today’s retail report showed.

“We’re off to a disappointing start to the year,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who projected a 0.3 percent decline in sales. “The weather clearly had some impact.” At the same time, “purchasing power is constrained. Consumers really aren’t borrowing, and wage growth is sluggish.”

Auto Sales

Sales slumped 2.1 percent at automobile dealers, the most since October 2012, after a 1.8 percent decrease the prior month.

Automakers said adverse weather depressed vehicle deliveries, which have been a bright spot for consumer spending in this expansion. Cars and light trucks sold at a 15.2 million annualized pace in January, slowing from a 15.3 million rate in December that had helped cap the best year for the industry since 2007, according to Ward’s Automotive Group.

Sales slid 12 percent for General Motors Co. and 7.5 percent for Ford Motor Co., the two largest U.S. automakers, while Toyota Motor Corp. and Honda Motor Co. also reported lower U.S. sales than analysts estimated.

“January got off to a pretty slow start with really inclement weather in the heartland of the country, all the way down into Texas,” John Felice, U.S. sales chief for Dearborn, Michigan-based Ford, said on a Feb. 3 conference call. “As things improved around the country mid-month, we saw a bounce-back in demand and sales, which was encouraging. Then, sadly, the last week of the month we saw again another arctic blast.”

Department Stores

Spending decreased 0.9 percent at clothing chains and 1.5 percent at department stores. Receipts fell 0.6 percent at furniture outlets and 1.4 percent at retailers of sporting goods, books and music.

Retailers showing an improvement in January sales included electronics stores, building materials outlets, gasoline stations and grocery chains.

Purchases excluding merchants such as food services, car dealers, hardware stores and service stations -- which are the figures used to calculate gross domestic product -- fell 0.3 percent after a revised 0.3 percent increase in the previous month that was smaller than initially reported.

Today’s report shows spending is cooling after a pickup in the final three months of 2013 as the labor market struggles to improve. Household purchases grew 3.3 percent in the fourth quarter, the biggest gain since the end of 2010, a Commerce Department data showed on Jan. 30. The economy expanded at a 3.2 percent annual rate.

Employment Growth

Payrolls increased 113,000 in January after climbing 75,000 a month earlier, the weakest back-to-back gain in three years, Labor Department figures showed Feb. 7. Average hourly earnings rose 1.9 percent in the year ended last month, matching December as the weakest since July 2013.

Among merchants reporting weaker sales is McDonald’s Corp. The world’s largest restaurant chain said sales at its established U.S. stores fell for the third straight month in January as severe weather and waning consumer confidence kept diners at home. The Oak Brook, Illinois-based company, which has recently struggled to attract Americans amid fierce restaurant competition, cited “broad-based challenges including severe winter weather” in the U.S., according to its Feb. 10 statement.

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