Americans pulled back on shopping after their big Christmas shopping spree, especially on big purchases that are typically financed with borrowed money.
Retail sales fell 0.8 percent in January from a month earlier. Economists had forecast a milder 0.1 percent decline.
Even with the decline, sales were up year-over-year by 0.6 percent.
Harsh winter weather probably played a role in declining sales in some categories. Sales at home improvement and garden center stores fell, for example.
The retail sales numbers are adjusted for seasonality but not for price changes. The consumer price index, a broad measure of price changes faced by American households, rose 0.3 percent in January. Prices of core goods, which exclude food and fuel, fell by 0.3 percent.
The report suggests that Americans pulled back on spending on big-ticket items such as cars and appliances. Car dealerships and electronics and appliance stores saw both month-over-month and year-over-year declines in spending. This may be evidence that the Federal Reserve’s interest rate hikes are weighing on spending as those are purchases that are typically financed.
Online spending fell after a big surge in December, the clearest evidence of a post-holiday shopping hangover. Compared with a year ago, however, online sales are still up an impressive 6.4 percent.
Sales were also down at clothing retailers and sporting goods and hobby stores. Gas station sales fell, likely due to both weather and a decline in gas prices.
In contrast, Americans raised spending on groceries and restaurants. Both of these saw big price increases in January, according to the consumer price index. This suggests that some of the weakness in other categories may have been due to food inflation.
The bigger than expected decline in retail sales may boost hopes that the Fed will cut interest rates late this spring or early summer. After strong labor market reports and higher than expected inflation, investors were starting to fear the economy could be overheating. The retail sales disappointment offers a counterweight to those reports.