Washington (CNN) — American shoppers pulled back on their spending last month for the first time since August as stubborn inflation continued to bite and harsh weather curbed economic activity.
Retail sales plunged 0.9% in January from the prior month, the Commerce Department said Friday. That’s down sharply from December’s upwardly revised 0.7% gain and well below economists’ expectations of a 0.4% decline. The figures are adjusted for seasonal swings but not inflation.
Shoppers reined in their spending across multiple categories last month. Specialty stores and auto dealers were hit hardest, with spending falling 4.6% and 3%, respectively.
A key measure that excludes volatile components, referred to as the “control group,” was down 1.2% in January. Spending at restaurants, bars and department stores remained in positive territory last month.
Sales at retailers and food establishments account for about a third of overall spending in the US. The American economy is driven by consumer spending, accounting for about 70% of economic output.
Inflation is down considerably from the 40-year highs of summer 2022, but it has shown signs of getting stuck in recent months. That’s a big reason why the Federal Reserve is holding off on additional interest rate cuts, after delivering three consecutive cuts last year.
Inflation could worsen if President Donald Trump keeps his promise of imposing 25% tariffs on Mexico and Canada as soon as March 1. The Trump administration is also weighing levying reciprocal tariffs in April. Most economists say Trump’s hefty duties would likely ramp up price pressures in the US, contrary to the Trump administration’s belief that foreign countries will pay for the tariffs.
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