America’s economy slowed—it probably won’t stumble

Federal Reserve figures show January’s industrial production edged down. (Photo: Bloomberg News)
Federal Reserve figures show January’s industrial production edged down. (Photo: Bloomberg News)


Retail sales and industrial production both dipped in January, but there were some encouraging signs.

The U.S. economy took a breather in January following brisk growth at the end of last year, but it remains fundamentally healthy.

Retail sales fell 0.8% in January from December, the Commerce Department said Thursday—much worse than expectations for a 0.3% decline. Also Thursday, Federal Reserve data showed January industrial production edging down 0.1% compared with expectations for a 0.2% increase.

Technical issues with how the retail sales data was seasonally adjusted might have weighed on the reading, and cold weather in January likely had an impact on both retail sales and industrial production. But those factors don’t explain away all the weakness.

Economists at Goldman Sachs, for instance, said in a note that cold weather doesn’t explain a decline in e-commerce, as sales by nonstore retailers fell 0.8%. Analysts at Bank of America noted that card spending remained soft in the week ended Feb. 10, despite no big weather events that week.

Yet there were also some encouraging signs in Thursday’s batch of data that went less noticed. Within the retail sales report, spending on food services and drinking places was up 0.7% from December and 6.3% higher than in January last year—not something one would expect if the economy were suddenly in trouble.

Fed surveys of manufacturing activity in New York state and the Philadelphia area in February both came in stronger than expected, weekly unemployment claims were lower than expected and there were indications in the industrial production report that the promising U.S. shift toward high-tech manufacturing is still going strong: Output of semiconductors, for instance, was up 23% from a year earlier, according to Capital Economics.

It isn’t all that surprising that consumers and manufacturers took something of a pause in January. Economists have long been expecting the Fed’s rate increases last year to start dragging on activity after a lag. And, while there has been debate about how much remains of the savings cushion consumers built up during the pandemic, no one expected these savings to last forever.

The real surprise is just how resilient the economy has been to the Fed’s tightening. Keep in mind that not long ago the consensus expectation was for an imminent recession. Economists at Morgan Stanley, taking into account January’s retail sales data, and downward revisions to December’s sales increase, said Thursday they expect first-quarter gross domestic product growth to come in at a 2% annualized pace. They expect fourth-quarter growth to be revised down to 2.1% from 3.3%.

“The retail sales report this month supports our view that the economy is strong but cooling," they said in a note, adding that “there is no reason for the Fed to rush the next move in rates."

The upshot? The fluctuation in stock and bond prices on the back of the week’s economic data was much ado about not much. The S&P 500 on Thursday ended above its closing level on Monday. A slower but steady U.S. economy is nothing to be afraid of.

Write to Aaron Back at

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