According to the US Census Bureau, retail sales for the month of January fell around 0.8% month-over-month compared to an estimated 0.2%. The decline for January was the largest since March 2023. The drop in sales has many on Wall Street questioning as to whether or not the theme of consumer resiliency is losing steam.

Mastercard Economics Institute Chief US Economist Michelle Meyer joins Yahoo Finance to discuss consumer resiliency, January retail numbers, and how consumer habits may change whenever the Federal Reserve opts to cut interest rates.

Meyers outlines which sectors that rate cuts would help ease pressures:
"It's going to provide us support for those categories that are more interest rate sensitive. So, even think about today this morning, you've got retail sales, but we also got the home builder confidence survey, which picked up, and has been rising now for the last several months, which shows that home builders are getting more confident about the fact that interest rates have come down. There's still a low level of supply of homes, and they are starting to plan for greater construction and upturn in that cycle. So, an easing of monetary policy does provide support for the broader economy."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

RACHELLE AKUFFO: So Michelle, as we continue to see consumers, as you mentioned in the note here, balancing prices and priorities, how does this change then as we perhaps will at some point later on in this year see a Fed rate cut kick in?

MICHELLE MEYER: Well, a Fed rate cut would be very helpful, of course, in terms of thinking about how much money they have to put towards debt service. So as the Fed starts to ease, cut interest rates, it's going to provide a support for those categories that are more interest rate sensitive.

So even think about today this morning, you got retail sales, but we also got the Homebuilder Confidence Survey, which picked up and has been rising now for the last several months which shows that homebuilders are getting more confident about the fact that interest rates have come down, there's still a low level of supply of homes, and they are starting to plan for greater construction and upturn in that cycle.

So an easing of monetary policy does provide support for the broader economy. And I would argue probably the most important factor to dictate how the consumer affairs this year is really the health of the labor market, which is holding up really nicely.

BRAD SMITH: Just lastly while we've got you, Michelle, in travel spending, what are the anticipations that we're seeing as we kind of look out to the rest of this year?

MICHELLE MEYER: Sure, so just like you've seen the consumer engage in terms of experiences broadly, whether that's Taylor Swift, Beyoncé, et cetera, you are also seeing a consumer who's been really eager to travel. If you look at the last summer season, last year's season, consumers really embraced traveling abroad.

The dollar was strong. That facilitated that. And I think many of those dimensions are still in play, but you do have to consider this year-over-year comp. It's going to be harder to see these extraordinarily impressive year-over-year growth rates. So look at it both from a level and a growth rate to put that into perspective.

RACHELLE AKUFFO: Now, of course, in terms of how people plan on paying for these experiences and everything else, continuing to see not just credit card debt but also some of the defaults are also starting to pick up there. How do you balance that when you're thinking about the strength of the consumer and how they're spending and funding their experiences?

MICHELLE MEYER: Sure. So I think you want to look at the household balance sheet holistically in the sense of how much debt is being taken on in the context of how much wealth has been created. And if you look at measures of net worth from the Federal reserve, we're so close to the highs that we've seen of this cycle and actually in recent history.

So the household balance sheet is still healthy on aggregate, and that's really important to keep in mind. And overall, income creation is still looking solid. So you have to consider all these different metrics rather than just necessarily pointing out one particular figure. And again, I think, it goes back to the labor market. It's the flow of income that drives spending and drives debt service and all the other decisions that the consumer has to right now.