US retail sales rose 0.4% m/m in January, ahead of our forecast and consensus expectations (both 0.1%). The miss
relative to our forecast came from strongerthanexpected increases in gasoline store sales, which were up 2.3% m/m.
Retail sales exgasoline were up a more modest 0.2%. Retail sales exautos were up 0.8% m/m, in line with our outlook for a solid 0.7% m/m rise. Auto sales, which had been running at about 18.0mn units in Q4, slowed in January, leading to a 1.4% m/m decline in motor vehicle sales. At the core level, retail sales were also solid, rising 0.4% m/m, in line with our expectation, amid broadbased
support from electronics (1.6% m/m), clothing (1.0%), sporting goods (1.8%), general merchandise sales (0.9%), and eating and drinking (1.4%). In addition to the solid January data, December data were also revised higher. Growth in headline retail sales was revised upward to 1.0% m/m, from 0.6% as previously reported, and core sales were revised to 0.4% from 0.2%.

Altogether, the retail sales data point to solid momentum in personal spending at the turn of the year. That said, we see much of the strength in nominal spending as driven by price effects. The January CPI report was stronger than expected, rising 0.6% m/m at the headline level and 0.3% at the core level. Many of the categories of CPI inflation that outperformed expectations – energy, airline fares, apparel and other core commodities – coincide with categories of retail sales that showed solid improvement at the turn of the year. Hence, we conclude that much of the momentum is in nominal spending, not real spending. After accounting for these price effects, we retain our outlook for modest gains in private consumption spending in Q1.

The retail sales report kicks off our GDP tracking for the quarter. After adjusting for price effects, the January retail sales data led to a twotenths decline in our Q1 GDP tracking estimate to 1.8%, versus our official forecast of 2.0%. Personal consumption is tracking 2.1%, down 0.4pp from our official forecast of 2.5%.


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