Consumers Pare Spending in January

Yields fall on weak consumer spending. UST yields fell 4-6 bps across the curve today following data that showed a sharp retail sales contraction in January. The data came after multiple strong inflation prints this week, and offered some support for a Fed cut in 2025. Both the 2- and 10-year yields closed ~5 bps lower today, ending at ~4.26% and ~4.48%, respectively. Equities were largely on pause today, however, with major equity indices ending roughly unchanged. The S&P 500 fell ~1bp, while the NASDAQ rose ~0.41%.

Retail sales plummet in January. Today’s data showed consumers rolled back purchases in January, following months of higher spending in the final stretch of 2024. Retail sales declined across all measurements, missing expectations and falling far below last month’s upwardly revised growth. Notably, the 0.9% pullback in the headline figure was the worst monthly result since last January. The retreat was driven by lower consumption across nine of the 13 spending categories in the report, and while spending was likely depressed by wildfires and severe winter weather, other factors such as high interest rates may signal a more fundamental change in consumer behavior.

Euro-area economy grew slightly in 2024 Q4. Initial estimates of 2024 Q4 euro-zone growth were upwardly revised from 0.0% to a 0.1% advance per final data released today. The rosier results were driven by expansions in the Netherlands (0.4%) and Spain (0.8%), which somewhat offset contractions in the two largest euro-zone economies, Germany and France. While the revised results were a welcome development, they also cemented the slowest quarterly growth in 2024, underscoring the persistent economic woes facing the euro-zone. Looking ahead, the ECB expects yearly economic growth to accelerate to 1.1% in 2025 vs 0.7% in 2024, however various risks such as those posed by U.S. reciprocal tariffs loom over an economic recovery.