Ignore the nonsense: January retail sales were solid

Illustration shows U.S. dollar banknotes — US retailers in January were not as bad as commentators might suggest. (Source: Reuters/Dado Ruvic)

By Neil Saunders February 17, 2025

Text Size

There will be a lot of nonsense spoken about this month’s retail sales numbers. Most of it will come from the fact that sales have fallen on a month-over-month basis using seasonally adjusted data.

As we have noted many times before, this is an indicator that is both illogical and completely divorced from reality. No retailer assesses their sales on a month-over-month basis, and even if they did, it is hardly revelatory that January sales would be lower than those in a month that contains Christmas and various other holidays which propel spending. Seasonal adjustment is supposed to strip out these variations but, in truth, it is a very faulty statistical tool that manipulates real data and turns it into numbers based on little more than guessing.

Based on the real data, retail sales grew by 4.8 per cent compared to the same period last year. Core sales, which exclude gasoline, autos, and food service, increased by 4 per cent. These are both very respectable levels of growth which means the year has started off on a strong note.

Of course, inflation is included in these numbers and when that is stripped out, underlying volumes for core retail grew by a more modest 1.6 per cent. However, given the spending splurge over the holidays, which included consumers taking on more debt, we see this as something of a win for a retail sector that could have come under significantly more pressure.

In the news cycle, the month was dominated by the changing of the political guard in Washington. This created a lot of noise around tariffs, which has stimulated some consumers to buy products early to avoid price increases. We saw this slightly in autos where, despite January being a traditionally low-volume month for new car sales, there was a nice uplift over the prior year. The trend repeated itself in some bigger-ticket sectors like home furnishings. All that said, the overall impact, while helpful, was marginal in growth terms.

On a sector basis, food and grocery stores had a very strong month with sales up by 5 per cent over the prior year. Some of this is the result of inflation resuming a grip on the sector, especially as many retailers cut back on the generous discounts and deals they offered over the holiday period. However, there was also some stocking up by consumers in response to colder weather and snow across some parts of the country – this had a small positive impact on underlying volumes.

At apparel stores, sales increased by 3.6 per cent. Cold weather helped drive sales of outerwear and warmer garments across the month, but there was also a helpful boost from shoppers taking advantage of discounts and bargains that were on offer after the holidays, as retailers tried to clear down inventory and keep the holiday spending spree going. Because of the promotions, inflation remained low in apparel and volume growth came in at around 2.9 per cent on a year-over-year basis.

Sales at home-related retailers were very mixed. Home improvement retailers eked out fractional growth of 0.7 per cent. Sales of winter preparation products were strong, but consumers continue to pull back on bigger projects which suppressed sales. Home furnishings stores had a better time of it with 5.2 per cent sales growth. This comes off the back of a very sharp pullback in the prior year, so some of the uplift is a correction. However, we also found that there was a greater willingness to refresh homes with new decor once the holidays had ended.

Sales at electronics stores remain sluggish, with just 0.2 per cent sales growth. Within this, appliances seem to have done reasonably well – probably boosted by the replacement cycle being dragged forward due to fear of tariffs increasing prices. However, more discretionary categories like computing fared less well.

Overall, retail will be highly satisfied with the start to the year. The challenge will be to keep this kind of momentum going. And on that front, there are a lot of potential headwinds from sticky inflation, high debt levels, and a suppressed housing market. The uncertainty of tariffs and their impact on prices adds another changeable dimension. Factoring all of this in, we think that growth may become more subdued as the year progresses but that retail will remain in positive territory.