The economy has stumbled after healthy growth last summer and fall. Weaker economies overseas, the U.S.-China trade fight, and the 35-day government shutdown dented consumer and business confidence. Economists believe growth could fall to a 1 percent annual rate or below in the first three months of this year.
Still, economists were relieved that sales rebounded after December's huge decline. Excluding sales at gas stations, which are affected by price changes, and car sales, which are a much larger purchase than those covered by the rest of the report, retail sales actually rose 1.2 percent in January.
The increase "provides some reassurance that consumer spending isn't falling off a cliff," Andrew Hunter, an economist at consulting firm Capital Economics, said. In January, auto sales plunged by the most in five years, and furniture and electronics store sales also declined. Sales at home and garden stores rose by the most in nearly a year and a half.
Gas station sales fell, held down by lower prices, and sales at clothing stores also dropped. On a brighter note, sporting goods, hobby, and book stores reported the biggest sales increase in six years.
Businesses have added jobs at a solid pace in the past three months and paychecks, on average, are growing faster than a year ago. Still, consumers pulled back on spending over the holidays, and that caution appears to have spilled over into January.
Consumer spending, which includes spending on services as well as retail sales, fell in December by the most in five years. The slowdown comes after consumer confidence fell for three straight months, dropping to an 18-month low in January. Americans grew more optimistic in February, however, suggesting that spending may pick up.
Spending over the winter holidays came in lower than expected, according to the National Retail Federation. The group had forecast holiday sales growth of 4.3 percent to 4.8 percent, but growth was just 2.9 percent, the slowest in six years.