US Retail Sales Slump Leads to Downgrade of Q1 GDP Estimate

Last month, U.S. retail sales experienced the largest decline in 10 months, leading the Atlanta Federal Reserve Bank (Atlanta Fed) to lower its growth forecast for the first quarter of this year.

On the 15th (local time), the Atlanta Fed's GDPNow model estimated the U.S. real gross domestic product (GDP) growth rate (seasonally adjusted) for the first quarter at 2.9%. This is a 0.5 percentage point decrease from the previous estimate of 3.4%.

This revision was driven by weak retail sales, which account for two-thirds of the U.S. real economy, showing sluggish performance since the beginning of the year. The retail sales data released that day for January showed a 0.8% decline compared to the previous month, marking the largest drop since March of last year. This figure was worse than Wall Street's forecast of -0.3%.

Such weak consumer spending adds weight to the possibility of a future economic slowdown in the U.S. Until now, contrary to initial forecasts that the U.S. would fall into a recession due to accumulated tightening, relatively strong consumer spending had supported solid growth. The U.S. GDP growth rate for the fourth quarter of last year was preliminarily estimated at 3.3%.

The Atlanta Fed also confirmed that the outlook for slowing consumption was the reason for lowering the first quarter GDP estimate. According to the Atlanta Fed, the recent forecasts for the first quarter real personal consumption expenditures growth rate and real gross private domestic investment growth rate, released by the Treasury Department, Census Bureau, and Federal Reserve, were also revised downward from 3.2% and 3.3% to 2.7% and 2.4%, respectively. The forecast for the contribution to real GDP growth was also lowered from 0.22 percentage points to 0.19 percentage points. The next GDPNow update is scheduled for the 16th.

Meanwhile, on the same day, the New York stock market rose across the board following the news of the retail sales decline. The Dow Jones Industrial Average, composed of blue-chip stocks, rose 0.91% from the previous close, the Nasdaq increased by 0.30%, and the large-cap S&P 500 index rose 0.58%, setting a new all-time high. The weaker-than-expected retail sales data somewhat eased concerns about prolonged monetary tightening, which is credited with driving the market rebound that day.