U.S. retail sales tumbled 0.9% in January, marking the sharpest contraction since March 2023 and far exceeding forecasts of a modest 0.1% decline. The downturn follows a revised 0.7% gain in December, highlighting waning consumer resilience amid persistent inflationary pressures and economic uncertainty.

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The decline was broad-based, with sporting goods (-4.6%), auto sales (-2.8%), and online retailers (-1.9%) suffering the steepest losses. Even discretionary categories like clothing (-1.2%) and furniture (-1.7%) saw declines, suggesting consumers are pulling back on non-essential spending.

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With core retail sales (excluding autos, gas, and building materials) falling 0.8%, GDP growth forecasts are being revised downward. Rising debt burdens, higher interest rates, and cooling wage growth indicate a deeper slowdown may be ahead, fueling recession fears as 2025 unfolds.

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US CPI Surges, Raising Inflation Concerns

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Following the sharp decline in retail sales, inflation is proving resilient, further complicating the economic outlook. The Consumer Price Index (CPI) rose 0.5% in January, marking the largest monthly increase since August 2023 and exceeding expectations. Shelter, food, and gasoline prices led the surge, with core CPI—excluding food and energy—climbing 0.4%. The annual CPI now stands at 3.0%, reinforcing concerns that inflationary pressures remain entrenched. The hotter-than-expected report diminished hopes for Fed rate cuts, sending stocks lower and Treasury yields higher. With tariffs on Chinese imports still looming, the risk of prolonged inflation remains a key threat to economic stability in 2025.

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